April 2025 UK GDP: The Start Of A Soft Q2

On an MoM basis, the economy shrunk by a larger than expected 0.3% in April, the first such monthly contraction since October of last year, and the largest such fall in 18 months. In turn, this saw the rolling 3-month pace of growth remain at 0.7%, almost entirely underpinned by a strong pace of expansion in Feb & Mar.

This economic contraction, though, shouldn't come as a particular surprise, albeit the usual caveats around the volatile and somewhat unreliable nature of the monthly GDP series must continue to apply. Said contraction comes largely as a result of payback from a surprisingly strong Q1, as the positive impacts of tariff front-running, as well as the pull forward of 'big ticket' purchases ahead of the various April tax changes are unwound.

That said, the figures do represent a soft start to what is likely to be a soft quarter overall, with leading indicators such as the latest PMI surveys pointing to the economy, at best, flat-lining in the Apr-Jun period. Clearly, numerous downside risks remain, not only in the form of elevated global trade uncertainty, but also as the full impact of the recent National Insurance increase is felt, and as another round of tax hikes likely lie in wait in this autumn's Budget.

The Bank of England, however, are near-certain to hold Bank Rate steady at 4.25% next Thursday, holding off on further easing until the August MPC meeting, amid continued concern over potentially persistent price pressures. The temporary nature of the summer 'hump' in inflation, coupled with rapid labour market loosening, and numerous downside growth risks, is though likely to lead to the MPC delivering a considerably faster pace of easing once summer is out, potentially even necessitating cuts in larger clip sizes too. The 'gradual and careful' policy guidance continues to put the MPC far behind the curve, and seems on borrowed time.