The UK’s services sector, which had been expanding for 17 months, saw an unexpected downturn in April. This decline was largely due to the uncertainty stemming from Donald Trump’s tariff policies, which affected new orders and exports.
A recent survey of purchasing managers indicated that the tariff situation has cooled activity in a sector that comprises about three-quarters of the UK economy, undermining business confidence moving forward.
Export sales in the services area dropped significantly, with overseas job creation falling at the fastest rate since February 2021, during the pandemic period.
Additionally, a domestic services company highlighted that the tax hikes introduced by Prime Minister Rachel Reeves increased costs, leading to a rise in layoffs in April.
In April, the seasonally adjusted S&P Global Services PMI Activity Index registered 49.0, a notable decrease from 52.5 in March. A reading of 50.0 indicates expansion, suggesting a concerning trend.
Recent data showed only a slight decline in overall production, following minor growth in the first quarter of 2025; however, worries about potential further tariffs loom large.
This past weekend, Trump hinted at possibly imposing a 100% tariff on foreign-made films, a move that has raised alarms about its potential impact on the UK film industry.
The report mentions that respondents to the survey frequently expressed concerns about increased global economic uncertainty, which has resulted in risk aversion among clients and delays in their spending decisions.
Notably, 22% of those surveyed foresaw a complete drop in business activities within the next year, up from 14% in March and 6% since the July 2024 election.
On Thursday, the Bank of England is anticipated to lower interest rates from 4.5% to 4.25%, as there are growing concerns that central banks must act quickly to reduce borrowing costs to prevent a prolonged economic downturn.
Some analysts suggest that there may be quicker cuts on the horizon. According to Threadneedle Street policymakers, Trump’s trade policies could affect growth, although the consequences for inflation remain uncertain.
The International Monetary Fund recently revised its UK economic growth forecast for 2025 down to 1.1% from 1.6%, though it believes the UK will likely perform better than some of its European counterparts, such as France and Germany.
Low employment figures have been reported by S&P Global over the last seven months, and the rate of job separations has accelerated slightly since March.
Tim Moore, president of Economics at S&P Global Market Intelligence, noted that survey participants frequently referred to the turbulence in global financial markets due to US tariff announcements. Companies in technology and financial services, in particular, have shown increased risk aversion and postponement of key investment decisions.
Conversely, providers of consumer services pointed to the sluggish state of the domestic economy, especially facing challenges from rising wage costs in sectors like hospitality and leisure.
The report also raised concerns about inflation rates possibly climbing again, as input prices have surged at the fastest rate observed since summer 2023, predominantly due to the impacts of national living wage adjustments and national insurance contributions.
Many businesses raised consumer prices and additional costs in April, further complicating the economic landscape.
