The UK economy shrunk by more than expected in blow to Rachel Reeves, just one day after she unveiled her spending review.
The chancellor, who set out record investment in the Commons on Wednesday, acknowledged that the latest GDP figures were “clearly disappointing” but insisted her plan for the economy would help deliver growth.
The Office for National Statistics (ONS) said that gross domestic product (GDP) fell by 0.3 per cent in April, compared with growth of 0.2 per cent the previous month and marking the biggest contraction since October 2023.
Ms Reeves argued that uncertainty about tariffs had contributed to the figures for April – the month Donald Trump announced sweeping levies on imports to the US.
“We know that April was a challenging month. There was a huge uncertainty about tariffs, and one of the things, if you dig into those GDP numbers today, is exports weakening and also production weakening because of that uncertainty in the world around tariffs”, the chancellor told Sky News.
She added that the figures were “not entirely unexpected, given the uncertainty that is out there in the world at the moment”.
On Wednesday, the chancellor unveiled record investment in her spending plans as she unveiled major boosts for the NHS, social housing and defence.
But experts warned that she will have to break her manifesto pledge not to raise taxes or increase borrowing much further to pay for her promises.
In particular, there were concerns over how savings will be made on housing asylum seekers amid a surge in small boat crossings, and there were questions over how pay rises for public sector workers will be met.
Former government economist Jonathan Portes warned the spending outlined by Ms Reeves meant tax rises were “very likely”, while Institute for Fiscal Studies director Paul Johnson warned: “The chancellor’s speech was full of numbers, few of them useful.”
In the wake of the spending review, left-leaning think tank the Resolution Foundation said the British state is “slowly turning into a National Health State”, noting that half of all public-service spending set to allocated to health and social care by the end of the decade.
Meanwhile, investment in other public services across the British state is shrinking, they said.
The Resolution Foundation’s analysis showed that while real, per-person funding for health has increased by 36 per cent between 2009-10 and 2028-29, it has fallen by 16 per cent for Justice, 31 per cent for Work and Pensions, and 50 per cent for Housing, Communities and Local Government over the same period.
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