Latest news with #UKeconomy
Yahoo
6 hours ago
- Business
- Yahoo
UK economy contracts sharply in April: Will the BoE respond?
Britain's economic recovery suffered a setback in April, with gross domestic product (GDP) shrinking by 0.3% on a monthly basis, marking the steepest contraction since October 2023, according to data released by the Office for National Statistics (ONS) on Thursday. The contraction, which exceeded market expectations of a 0.1% fall, has renewed concerns over the UK economy's resilience and intensified pressure on both Downing Street and the Bank of England (BoE)'s policy stance. The April downturn followed a modest 0.2% expansion in March and comes amid a broader backdrop of weakening labour market data and fading consumer momentum. The services sector, which accounts for around 80% of UK economic output, was the primary drag in April, declining by 0.4%. Within services, the professional, scientific and technical activities subsector posted a significant fall of 2.4%. This contraction was driven mainly by a 10.2% plunge in legal activities, attributed in part to the impact of changes to Stamp Duty Land Tax thresholds in England and Northern Ireland. The tax change prompted homebuyers to bring forward purchases to March, resulting in a sharp drop in related services, such as conveyancing and estate agency work, in April. Advertising and market research also contributed negatively to GDP, with output down 3.4%, while growth in scientific research and development (up 6.7%) provided a partial offset. The wholesale and retail trade and repair of motor vehicles and motorcycles subsector also weighed on GDP, declining by 1.2% in April after a 0.9% expansion in March. Related Bank of England cuts main interest rate as US tariffs threaten growth UK unemployment rises to a four-year high as firms cut back on hires Production output fell by 0.6% in April, with manufacturing production sliding 0.9% — adding to a 0.8% fall in the previous month. Overall industrial production contracted by 0.6%, coming in weaker than the 0.5% decline expected by analysts. Despite a rebound in construction output, which rose 0.9% month-on-month, it was not enough to counterbalance the broader economic dip. The downturn in GDP comes on the heels of deteriorating labour market data released earlier this week. The number of payrolled employees fell by 109,000 in May, the seventh consecutive monthly decline and the sharpest drop since May 2020. The total stood at 30.2 million, a 0.4% monthly fall. The unemployment rate ticked up to 4.6% in the three months to April, in line with expectations, while wage growth softened. Regular pay excluding bonuses increased by 5.2% year-on-year — the slowest pace in seven months and below the 5.4% forecast. Despite the mounting economic headwinds, the BoE is widely expected to leave interest rates unchanged at 4.25% at its upcoming meeting next week. However, traders have increased their bets on a rate cut in August, anticipating a 0.25 percentage point reduction as the economy shows further signs of cooling. Overall, money markets are currently pricing two interest rate cuts of cumulative 50 basis points by the BoE this year. Sterling came under pressure following the GDP release, with the euro rising to 0.85 pounds — the highest level in over a month during morning trading. UK government bond yields extended their weekly declines. The yield on the two-year gilt fell to 3.90%, the lowest since early May, while the ten-year yield slipped to 4.53%. Equity markets, however, remained broadly resilient. The FTSE 100 held steady around 8,860 points, just shy of Wednesday's all-time high of 8,885. Among the notable movers, Halma plc surged over 8% on the back of strong corporate results. BP also gained 1.8%, buoyed by higher oil prices following the announcement of a trade agreement between the United States and China. On the downside, Intermediate Capital Group and EasyJet dropped 4.1% and 2.6%, respectively. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
7 hours ago
- Business
- Yahoo
UK borrowing rises in May, making tax hikes ‘increasingly likely'
The Treasury borrowed more than expected in May, prompting fresh warnings from economists that autumn tax rises are 'increasingly likely'. Figures from the Office for National Statistics (ONS) showed that public sector net borrowing reached £17.7bn last month — £600m higher than the £17.1bn forecast by the Office for Budget Responsibility (OBR), and £700m above the same month in 2024. ONS deputy director for public sector finances Rob Doody said: 'Last month saw the public sector borrow £700m more than at the same time last year, with only 2020, affected as it was by Covid-19, seeing higher May borrowing in the time since monthly records began. 'While receipts were up, thanks partly to higher income tax revenue and national insurance contributions, spending was up more, affected by increased running costs and inflation-linked uplifts to many benefits.' Despite May's overshoot, borrowing for April and May combined stood at £37.7bn — £2.9bn lower than the OBR's cumulative forecast for the first two months of the 2025–26 fiscal year. Nonetheless, analysts warn the chancellor Rachel Reeves may face difficult decisions ahead. Read more: FTSE 100 LIVE: Markets upbeat as UK and EU begin talks on Iran and Trump sets two week deadline 'Despite the overshoot in May, public borrowing was £2.9bn below the OBR's forecast in the first two months of the fiscal year. That said, the OBR may still revise up its borrowing forecasts from March in the autumn budget,' City consultancy Capital Economics said. 'That and already-tight spending plans mean tax hikes later this year appear increasingly likely.' Central government receipts rose by £3.5bn year-on-year to £61.7bn in May, boosted by a £1.9bn increase in income tax, £800m more in VAT receipts and £600m in corporation tax. An increase in employer national insurance contributions contributed to a £1.8bn rise in compulsory social contributions, bringing that total to £15.1bn. However, central government spending climbed by £4.1bn over the same period. Pay rises for public sector workers and higher inflation-linked benefit payments, along with earnings-linked uplifts in pensions, were key drivers of the increase. The latest borrowing leaves the UK's net debt at 96.4% of GDP, 0.5 percentage points higher than a year ago and among the highest levels recorded since the 1960s. Rachael Griffin, tax and financial planning expert at Quilter, warned: 'As the country edges closer to the autumn budget, speculation continues about potential tax changes. Reports suggest Labour may look again at capital gains tax, dividend reliefs, and even consider further freezes to income tax thresholds. Combined with rising property and asset values, this could make the overall tax landscape significantly more punitive. 'In this environment, early and careful tax planning is essential. With thresholds still frozen and reliefs under review, the cost of inaction is only going to rise.' Read more: Looming petrol price increase could hit fragile consumer confidence Thomas Pugh, economist at RSM UK, said the chancellor's room for manoeuvre had narrowed since March. 'Looking ahead to the budget in the autumn, the underperformance of the economy and higher borrowing costs mean the chancellor may already have lost the £9.9bn of fiscal headroom that she clawed back in March,' he said. 'Throw in the tough outlook for many government departments announced in the spending review and U-turns on welfare spending and the chancellor will probably have to announce some top-up tax increases after the summer.' Most economic forecasters, including the International Monetary Fund and the Bank of England, have downgraded the UK's growth prospects this year. This could potentially reduce tax receipts over the longer term and force Reeves to make further spending cuts or raise taxes. Alison Ring, director of public sector and taxation at the Institute of Chartered Accountants in England and Wales, urged longer-term thinking. 'While there is always a hope that tax rises can be kept to a minimum, we hope the chancellor will take this opportunity to consult over the summer on a range of potential tax changes, even if they may not all be needed. It is time to end HM Treasury's extremely bad habit of tinkering with the tax system with policies designed in haste in the run-up to each fiscal event.' The chief secretary to the Treasury said the latest borrowing figures showed the government has 'stabilised the economy and the public finances'. Darren Jones said: 'Since taking office, we have taken the right decisions to protect working people, begin repairing the NHS, and fix the foundations to rebuild Britain. We stabilised the economy and the public finances; now we need to ensure that the British economy delivers for working people. 'Last week's spending review showed how we are investing in the UK's security, health, and the economy through our Plan for Change, so that people are better off.' Read more: Why bitcoin and gold are rallying as bond yields hit 30-year highs Bank of England holds interest rates at 4.25% amid inflation fears What you need to know about UK's private stock market PiscesError in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Sky News
9 hours ago
- Business
- Sky News
UK economy contracts - with record fall in exports to the US after Trump tariff hikes
The UK economy shrank more than expected in April as the worst of President Trump's tariffs hit. The standard measure of economic output (GDP) contracted a sharp 0.3% in April, data from the Office for National Statistics (ONS) showed. During the month, Mr Trump's so-called "Liberation Day" applied steep tariffs to countries around the world and sparked a trade war with China, the world's second-largest economy. The outcome is worse than expected by economists. A contraction of just 0.1% had been forecast by economists polled by the Reuters news agency. It's also down from the growth of 0.2% recorded in March. Blow for Reeves It's also bad news for Chancellor Rachel Reeves, who has made the push for economic growth her number one priority. Speaking to Sky News following the news, she described the figures as "disappointing". 12:55 Additional costs on businesses were also levied during the month, as higher minimum wages and employer national insurance contributions took effect, which businesses told the ONS played a part in their performance. Why? The biggest part of the economy, the services sector, contracted by 0.4%, and manufacturing dropped 0.9%. There was the largest ever monthly fall in goods exported to the United States, the ONS said. Decreases were seen across most types of goods due to tariffs, it added. Higher stamp duty depressed house buying and meant legal and real estate firms fared badly in the month. After a strong showing in the first three months, car manufacturing performed poorly.
Yahoo
10 hours ago
- Business
- Yahoo
UK borrowing rises in May, making tax hikes ‘increasingly likely'
The Treasury borrowed more than expected in May, prompting fresh warnings from economists that autumn tax rises are 'increasingly likely'. Figures from the Office for National Statistics (ONS) showed that public sector net borrowing reached £17.7bn last month — £600m higher than the £17.1bn forecast by the Office for Budget Responsibility (OBR), and £700m above the same month in 2024. ONS deputy director for public sector finances Rob Doody said: 'Last month saw the public sector borrow £700m more than at the same time last year, with only 2020, affected as it was by Covid-19, seeing higher May borrowing in the time since monthly records began. 'While receipts were up, thanks partly to higher income tax revenue and national insurance contributions, spending was up more, affected by increased running costs and inflation-linked uplifts to many benefits.' Despite May's overshoot, borrowing for April and May combined stood at £37.7bn — £2.9bn lower than the OBR's cumulative forecast for the first two months of the 2025–26 fiscal year. Nonetheless, analysts warn the chancellor Rachel Reeves may face difficult decisions ahead. Read more: FTSE 100 LIVE: Markets upbeat as UK and EU begin talks on Iran and Trump sets two week deadline 'Despite the overshoot in May, public borrowing was £2.9bn below the OBR's forecast in the first two months of the fiscal year. That said, the OBR may still revise up its borrowing forecasts from March in the autumn budget,' City consultancy Capital Economics said. 'That and already-tight spending plans mean tax hikes later this year appear increasingly likely.' Central government receipts rose by £3.5bn year-on-year to £61.7bn in May, boosted by a £1.9bn increase in income tax, £800m more in VAT receipts and £600m in corporation tax. An increase in employer national insurance contributions contributed to a £1.8bn rise in compulsory social contributions, bringing that total to £15.1bn. However, central government spending climbed by £4.1bn over the same period. Pay rises for public sector workers and higher inflation-linked benefit payments, along with earnings-linked uplifts in pensions, were key drivers of the increase. The latest borrowing leaves the UK's net debt at 96.4% of GDP, 0.5 percentage points higher than a year ago and among the highest levels recorded since the 1960s. Rachael Griffin, tax and financial planning expert at Quilter, warned: 'As the country edges closer to the autumn budget, speculation continues about potential tax changes. Reports suggest Labour may look again at capital gains tax, dividend reliefs, and even consider further freezes to income tax thresholds. Combined with rising property and asset values, this could make the overall tax landscape significantly more punitive. 'In this environment, early and careful tax planning is essential. With thresholds still frozen and reliefs under review, the cost of inaction is only going to rise.' Read more: Looming petrol price increase could hit fragile consumer confidence Thomas Pugh, economist at RSM UK, said the chancellor's room for manoeuvre had narrowed since March. 'Looking ahead to the budget in the autumn, the underperformance of the economy and higher borrowing costs mean the chancellor may already have lost the £9.9bn of fiscal headroom that she clawed back in March,' he said. 'Throw in the tough outlook for many government departments announced in the spending review and U-turns on welfare spending and the chancellor will probably have to announce some top-up tax increases after the summer.' Most economic forecasters, including the International Monetary Fund and the Bank of England, have downgraded the UK's growth prospects this year. This could potentially reduce tax receipts over the longer term and force Reeves to make further spending cuts or raise taxes. Alison Ring, director of public sector and taxation at the Institute of Chartered Accountants in England and Wales, urged longer-term thinking. 'While there is always a hope that tax rises can be kept to a minimum, we hope the chancellor will take this opportunity to consult over the summer on a range of potential tax changes, even if they may not all be needed. It is time to end HM Treasury's extremely bad habit of tinkering with the tax system with policies designed in haste in the run-up to each fiscal event.' The chief secretary to the Treasury said the latest borrowing figures showed the government has 'stabilised the economy and the public finances'. Darren Jones said: 'Since taking office, we have taken the right decisions to protect working people, begin repairing the NHS, and fix the foundations to rebuild Britain. We stabilised the economy and the public finances; now we need to ensure that the British economy delivers for working people. 'Last week's spending review showed how we are investing in the UK's security, health, and the economy through our Plan for Change, so that people are better off.' Read more: Why bitcoin and gold are rallying as bond yields hit 30-year highs Bank of England holds interest rates at 4.25% amid inflation fears What you need to know about UK's private stock market PiscesError in retrieving data Sign in to access your portfolio Error in retrieving data
Daily Mail
12 hours ago
- Business
- Daily Mail
Supermarkets suffer 'dismal' May as Brits cut spending on food and booze amid economic gloom with retail sales diving by biggest rate in a year
UK retail sales fell at the fastest rate in more than a year last month, as food and clothing sales slumped and shoppers cut back on alcohol and tobacco spending, new figures show. The Office for National Statistics said the total volume of retail sales fell by 2.7 per cent in May. This compared with a 1.3 per cent rise in April, which was revised up from a previous estimate of 1.2 per cent for the month. May's overall retail sales came in considerably below the 0.7 per cent decline that most economists had been expecting for the month. It was also the biggest monthly fall since December 2023. The ONS said it was a 'dismal' month for supermarkets with food sales falling sharply following a jump in April. ONS senior statistician Hannah Finselbach said: 'Retail sales fell sharply in May with their largest monthly fall since the end of 2023. 'This was mainly due to a dismal month for food retailers, especially supermarkets, following strong sales in April. 'Feedback suggested reduced purchases for alcohol and tobacco with customers choosing to make cutbacks.' She added that clothing and homeware stores were reporting reduced footfall in May – meaning fewer people coming into shops. A drop in demand for DIY items last month followed the sunny weather in April that had boosted home improvement projects. Despite May's decline, retail sales volumes rose by 0.8% across the three months to May, compared with the three months to February.
