UK business activity falls for the first time since October 2023 as trade tensions hurt economy
Newsflash: Business activity across the UK has fallen for the first time in 18 months, as trade war fears batter the British economy.
The latest poll of purchasing managers at UK service sector companies has found that business activity declined in April, ending a 17-month run of growth, and pulling the wider private sector into a contraction.
New order books at services companies shrank last month, driven by the fastest decline in exports since February 2021, when the Covid-19 pandemic was hitting activity.
Data provider S&P Global says that “survey respondents widely commented on risk aversion and delayed spending decisions among clients in response to rising global economic uncertainty.”
This dragged the S&P Global UK Services PMI Business Activity Index down to 49.0 in April, down from 52.5 in March, which is the lowest reading since January 2023. Any reading below 50 signals a contraction.
The PMI report says:
While many firms continued to report unfavourable domestic demand conditions, the latest survey indicated a particularly marked decline in new work from overseas markets.
The rate of contraction was the steepest for just over four years and mostly linked by survey respondents to the impact of rising global trade tensions.
S&P Global also reports that the wider UK private sector also contracted last month.
Its UK PMI Composite Output Index, which also tracks the manufacturing industry, fell to 48.5 in April, down from 51.5 in March and below the 50.0 no-change value for the first time in one-and-a-half years.
Key events
Back in Frankfurt, stocks are recovering after Friedrich Merz won a second vote to become the next German chancellor, a few hours after dramatically losing the first vote.
The DAX is now down just 0.4%. The euro has pushed a little higher too – now up half a cent against the US dollar at $1.136.
UK lender Nationwide has announced cuts to its mortgage deals – perhaps anticipating the Bank of England lowering borrowing costs on Thursday.
Nationwide is trimming up to 0.3 percentage points off some mortgage products, which means rates now start at 3.84%.
The cuts mean Nationwide is now offering sub-4% first-time buyer rates for first time since September 2024.
It’s lowest first-time buyer rate is 3.94% and available on a two-year fixed rate product at 60% loan-to-value (LTV) with a £1,499 fee.
Ireland is bracing for a growth slowdown if Donald Trump maintains tariffs on the European Union.
Ireland’s finance ministry has issued new forecasts, showing that growth in Ireland’s domestic economy is expected to slow to 2% this year if a 10% tariff on U.S. imports from the European Union remains in place or 2.5% if tariffs are removed.
Wall Street has opened in the red, with the main indices all lower in early trading.
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Dow Jones industrial average: down 273 points, or 0.66%, at 40,945 points
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S&P 500: down 39 points, or 0.7%, at 5,611 points
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Nasdaq composite: down 160 points, or 0.9%, at 17,684 points
Fitch: trade war will push Canada into recession this year
Ratings agency Fitch is predicting that the trade war with the US will push Canada into recession this year, and push up unemployment.
In a new report today, Fitch warns that “due to the impact of U.S. tariffs, we forecast a recession” – a blow to new prime minister Mark Carney.
Fitch predicts that Canadian GDP will declining for three-quarters, starting in April-June this year, with annual average growth in 2025 of just 0.1%.
The agency adds:
The rapidly changing tariff and trade landscape in the U.S. will both directly affect Canadian exports and also indirectly via slower U.S. GDP growth. This will have an adverse effect on the labour market; Fitch expects the unemployment rate to rise to over 8%.
UK and India clinch trade deal
Britain has secured its biggest trade agreement since Brexit, by agreeing a free trade deal with India.
Britain’s business department says the deal, just announced, is a “huge economic win” for the UK, and will cut Indian tariffs on key products such as whisky, cosmetics and medical devices.
The deal is expected to increase bilateral trade by £25.5bn “in the long run” (which I think means by 2040).
Business and Trade Secretary Jonathan Reynolds says:
“By striking a new trade deal with the fastest-growing economy in the world, we are delivering billions for the UK economy and wages every year and unlocking growth in every corner of the country, from advanced manufacturing in the North East to whisky distilleries in Scotland.
“In times of global uncertainty, a pragmatic approach to global trade that provides businesses and consumers with stability is more important than ever.”
Under the deal, India’s tariffs on UK whisky and gins will be halved from 150% to 75% before reducing to 40% by year ten of the deal, while automotive tariffs will go from over 100% to 10% under a quota.
Other UK goods with reduced tariffs include cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate, and biscuits.
In return, the UK will cut tariffs on Indian producs including clothes, footwear, and food products including frozen prawns.
India’s prime minister Narendra Modi has also hailed the deal, saying:
“These landmark agreements will further deepen our comprehensive strategic partnership, and catalyse trade, investment, growth, job creation, and innovation in both our economies.”
Delighted to speak with my friend PM @Keir_Starmer. In a historic milestone, India and the UK have successfully concluded an ambitious and mutually beneficial Free Trade Agreement, along with a Double Contribution Convention. These landmark agreements will further deepen our…
— Narendra Modi (@narendramodi) May 6, 2025
US trade deficit hits record amid pre-trade war stockpiling
Just in: New data confirms that the US trade deficit rose to a record level in March.
America’s total goods and services deficit increased by $17.3bn to $140.5bn in March, up from $123.2 billion in February, the US censud bureau reports.
The increase was due to a 4.4% rise in imports in March, to $419bn, while US exports were only 0.2% higher at $278.5bn.
The increase in imports may be due to companies trying to stock up before the White House imposed new tariffs on goods from abroad in April.
The report shows that imports of consumer goods increased by $22.5bn, while capital goods imports rose by $3.7bn, computer accessories were up $2bn and automotive vehicles, parts, and engine shipments increased by $2.6bn.
The report also shows that the US achieved budget surpluses with Netherlands ($4.5bn), South and Central America ($3.2bn), Hong Kong ($1.9bn), United Kingdom ($1.2bn), Singapore ($500m), Brazil ($500m), and Saudi Arabia ($200m).
But beficits were recorded with the European Union ($48.3bn), Ireland ($29.3bn), China ($24.8bn), Mexico ($16.8bn), Switzerland ($14.7bn), Vietnam ($14.1bn), Taiwan ($8.7bn), India ($7.7bn), Germany ($7.5bn), South Korea ($6.8bn), Japan ($5.8bn), Canada ($4.9bn), Italy ($4.4bn), France ($3.9bn), Malaysia ($3.2bn), Australia ($1.0bn), Israel ($1.0bn), and Belgium ($100m).
Luxury car maker Ferrari has joined the pack of auto companies warning that the US trade war could hurt its earnings.
Ferrari reported a 13% rise in revenues in the first three months of this year, with operating profit up 23%.
“Another year is off to a great start” said Benedetto Vigna, CEO of Ferrari, explaining:
“In the first quarter of 2025, with very few incremental shipments year on year, all key metrics recorded double-digit growth, underscoring a strong profitability driven by our product mix and continued demand for personalizations.
Vigna added that Ferrari is “very excited about what lies ahead.”
But that roadmap includes the threat of tariffs – and Ferrari warns that the introduction of import tariffs on EU cars into the USA could knock 50 basis points (half a percentage point) off its profitability percentage margins this year.
Ian Plummer, commercial director of online vehicle marketplace Auto Trader, said “short-term turbulence” is most likely to blame for April’s drop in new car sales (see earlier post for details).
He added:
“We’re seeing new car visits on Auto Trader up 8% on 2024 and we’re confident this will convert to sales in the coming months.”
Dan Caesar, chief executive of lobby group Electric Vehicles UK, said:
“Month after month at least one in five new car buyers are now going battery electric.
“As the industry demonstrates that battery electric vehicles are the cheaper and better option, more and more end-users will opt for all-electric vehicles.”
Sales of new light commercial vehicles (LCVs) also fell last month in the UK.
Van registrations dropped by -14.9% in April, with 20,332 vans, 4x4s and pick-ups sold, according to the latest figures published today by the Society of Motor Manufacturers and Traders (SMMT).
Shares in Ford are set to fall when trading begins in New York in just under two hour’s time.
Ford’s stock is down almost 2.5% in premarket trading, after it withdrew its financial guidance last night and indicated tariffs could wipe $1.5bn off its profits this year.
Lisa O’Carroll
The EU has launched a market surveillance of Chinese imports into the bloc amid fears that the trade war with the US is diverting goods to Europe, my colleague Lisa O’Carroll reports.
It comes amid reports that discount online retailers Shein and Temu have upped their marketing spend in Europe after Donald Trump’s tariffs were introduced on all packages up to $800 in value on Saturday.
Trade commissioner Maros Sefcovic has again warned that the existing tariffs on the automotive and steel sectors along with the threat of tariffs in six other areas is “unacceptable”.
Speaking at the European parliament on Tuesday he again urged the US to cut a deal describing the EU as “by far the most important economic partner of the US”.
He said if Trump carries through his various threats of tariffs in addition to existing import duties on cars and steel, its import taxes would jump from €7bn in 2024 to €100bn.
He said:
“This situation is not acceptable and we cannot afford to stay idle.”
If the US doesn’t cut a deal, Europe is prepared for retaliatory tariffs and litigation, he warned.
In the meantime the EU has started monitoring potential diversion of trade from China to the US to Europe with the first results of the survey anticipated in mid-May.
“The aim is to protect the EU market from possible surges of imports from other countries that are also hit by US tariffs and which seek alternative markets. The first results of this work are anticipated in mid-May,” he said.
The decline in the UK private sector last month adds to the pressure on the Bank of England to ease monetary policy.
The BoE is widely expected to cut interest rates at its next meeting, on Thursday. The money markets indicate there’s a 92% chance of a quarter-point cut to Bank rate, to 4.25%, and an 8% possibility of a larger, half-point cut to 4%.
Daniela Sabin Hathorn, senior market analyst at Capital.com, sets the scene:
The Bank of England (BoE) is widely expected to deliver a rate cut at its upcoming meeting, as policymakers balance weak domestic growth with the inflationary risks stemming from global trade tensions. At its March meeting, the Monetary Policy Committee (MPC) voted 8-1 to keep the Bank Rate at 4.5%, with only external member Swati Dhingra advocating for a 25-basis-point cut.
At that time, persistently high inflation was a key factor in maintaining the current rate. Headline CPI had climbed back to 3% in January, and the BoE projects it could rise further to 3.75% by summer. Geopolitical uncertainty and renewed U.S. tariff threats have also prompted a cautious stance, even as domestic data shows lacklustre growth and hiring plans, while wage pressures in services remain elevated.
Governor Andrew Bailey reiterated the need for prudence, noting that while easing is on the table, it must be guided by “accumulating evidence that price pressures are easing,” and emphasizing that there is “no presumption about cuts at the next few meetings.
Thursday’s rate decision will be released at 12.02pm, incidentally, rather than bang on noon, due to the two-minute silence to mark VE Day.
Moody’s Ratings cuts global growth forecast due to trade war
Moody’s Ratings has cut its global growth forecast to 1.9% in 2025 and 2.3% in 2026, driven by tariff uncertainty and trade tensions.
Moody’s updated forecasts now predict:
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Reduced UK real GDP growth of 0.8% in 2025 and 1.3% in 2026.
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US real GDP growth to fall to 1% in 2025 and 1.5% in 2026, with inflation to hit 3% this year.
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China’s real GDP growth to slow to 3.8% in 2025 and 3.9% in 2026.
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In the Eurozone – Germany’s real GDP growth is expected to be 0% in 2025 and 1.4% in 2026, with slowdowns in France (0.5% in 2025 and 1.2% in 2026) and Italy (0.5% in 2025 and 0.6% in 2026).
European markets fall after Merz loses vote to become Germany’s chancellor
Back in the City, the early stock market gains have vanished.
The FTSE 100 index is now down 17 points, or 0.2%, at 8597, threatening to end its record-breaking run of 15 daily rises in a row.
The slide comes as European markets drop, led by Germany’s DAX which has fallen by 1.9% today. Frankfurt traders are alarmed that Friedrich Merz has failed to get enough votes to become chancellor in the first vote today in the Bundestag.
That’s quite a shock, as Merz had been expected to be rubber-stamped to succeed Olaf Sholz today.
His CDU/CSU/SPD coalition nominally has 328 votes in the Bundestag – but he got only 310, six short of the majority required to confirm him as the next chancellor.
It has prompted the far-right Alternative für Deutschland party calls for fresh elections in Germany.
Tesla sales drop 62% in April
Sales of Tesla cars tumbled by over 60% last month, amid a wider backlash against Elon Musk.
Just 512 new Tesla models were registered in April, the latest sales data from trade body the SMMT shows, down from 1,352 in April 2024.
Tesla’s market share shrank to 0.43% in April, down from 1% a year ago, as sales of battery electric vehicles (BEV) increased 8.1%.
Tesla’s sales have also been dropping across Europe this year, with some customer shunning the brand following Musk’s tilt to the political right.
But last month’s sales drop may also be due to model changes at Tesla. Deliveries of its latest Model Y, codenamed “Juniper”, were expected to begin in May, so customers may have been waiting for it to arrive.
In February, Tesla’s Model 3 and Model Y cars were the second and third most popular in the UK after the Mini Cooper. But both failed to make the top 10 in April, with Kia’s Sportage topping the list:
UK business expectations tumble
Worryingly, UK business expectations for the year ahead fell sharply last month.
This morning’s PMI report shows that service sector firms are bracing for an extended period of global economic turbulence and heightened recession risks.
Some 22% of the survey panel predict an outright decline in business activity during the next 12 months, up from 14% in March and well above the post-election low of 6% in July 2024.
Tim Moore, Economics Director at S&P Global Market Intelligence, says:
“UK service sector output slipped into contraction for the first time in one-and-a-half years as heightened business uncertainty weighed on order books during April. Export conditions were particularly weak, with new business from abroad falling to the greatest extent since February 2021.
Survey respondents often commented on the impact of global financial market turbulence in the wake of US tariff announcements. Businesses in the technology and financial service sectors noted rising risk aversion and delayed spending decisions among clients, especially in relation to major investment plans.
Consumer service providers meanwhile cited subdued domestic economic conditions and challenges with passing on rising payroll costs, especially those in the hospitality and leisure sectors.
UK business activity falls for the first time since October 2023 as trade tensions hurt economy
Newsflash: Business activity across the UK has fallen for the first time in 18 months, as trade war fears batter the British economy.
The latest poll of purchasing managers at UK service sector companies has found that business activity declined in April, ending a 17-month run of growth, and pulling the wider private sector into a contraction.
New order books at services companies shrank last month, driven by the fastest decline in exports since February 2021, when the Covid-19 pandemic was hitting activity.
Data provider S&P Global says that “survey respondents widely commented on risk aversion and delayed spending decisions among clients in response to rising global economic uncertainty.”
This dragged the S&P Global UK Services PMI Business Activity Index down to 49.0 in April, down from 52.5 in March, which is the lowest reading since January 2023. Any reading below 50 signals a contraction.
The PMI report says:
While many firms continued to report unfavourable domestic demand conditions, the latest survey indicated a particularly marked decline in new work from overseas markets.
The rate of contraction was the steepest for just over four years and mostly linked by survey respondents to the impact of rising global trade tensions.
S&P Global also reports that the wider UK private sector also contracted last month.
Its UK PMI Composite Output Index, which also tracks the manufacturing industry, fell to 48.5 in April, down from 51.5 in March and below the 50.0 no-change value for the first time in one-and-a-half years.
