What's happened
The UK services sector experienced its first contraction in 17 months in April 2025, with the S&P Global UK services PMI dropping to 49.0. This decline is attributed to uncertainty from US tariffs, which have dampened business confidence and led to reduced export orders. The Bank of England is expected to respond with interest rate cuts.
What's behind the headline?
Key Factors Behind the Contraction
- US Tariff Impact: The recent tariffs imposed by the US have created significant uncertainty, leading to reduced orders and cautious spending among businesses.
- Business Confidence: The S&P Global survey indicates a notable decline in business confidence, with 22% of respondents predicting a decline in activity over the next year.
- Employment Concerns: Job losses have accelerated, particularly among smaller service companies, as they struggle with rising costs and reduced demand.
Future Outlook
- Interest Rate Cuts: The Bank of England is likely to cut interest rates to stimulate growth, but the effectiveness of such measures remains uncertain amid ongoing global economic challenges.
- Potential for Recovery: While the current outlook is bleak, some analysts suggest that the UK may still outperform other European economies if trade conditions improve.
What the papers say
According to Phillip Inman in The Guardian, the UK services sector's PMI fell to its lowest level since January 2023, reflecting a significant downturn in business activity. Inman notes that the uncertainty from US tariffs has led to a 'chill' in the sector, particularly affecting export sales. Meanwhile, Henry Saker-Clark from The Independent highlights that the contraction is the first in 17 months, emphasizing the impact of global financial market turbulence on UK businesses. Both sources agree on the detrimental effects of rising costs and tax increases on smaller companies, which have resulted in increased layoffs.
How we got here
The contraction follows a period of modest growth in early 2025, with rising costs and tax increases contributing to a decline in business activity. The uncertainty surrounding US tariffs, particularly those announced by President Trump, has exacerbated the situation, impacting both domestic and export orders.
Go deeper
- What are the implications of the US tariffs on the UK economy?
- How might the Bank of England's rate cuts affect businesses?
- What sectors are most impacted by the current economic climate?
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