(Commonwealth_Europe) The UK economy has been dealt a significant blow as its dominant services sector, which accounts for approximately three-quarters of national output, unexpectedly contracted in April, ending 17 months of steady growth. This abrupt shift is being closely linked to mounting global uncertainty, particularly the escalating trade tensions driven by U.S. President Donald Trump. His administration’s increasingly aggressive tariff regime has rippled through international markets, causing hesitation among businesses and consumers alike, and casting a long shadow over both domestic demand and overseas trade.
A detailed poll of purchasing managers across the UK’s services sector revealed that these trade policies have begun to erode commercial confidence significantly. The chilling effect has been most evident in export activity, where new orders from abroad contracted at the fastest pace since February 2021—a time when the economy was still grappling with the aftershocks of the COVID-19 crisis. Many UK service providers, especially those reliant on international clients, reported that customers are delaying projects and reining in spending due to fears of prolonged trade disruption and economic instability.
Domestically, smaller service companies are facing their set of pressures, which are compounding the sector’s difficulties. A number of these businesses have pointed to recent tax hikes introduced by Chancellor Rachel Reeves as a major factor weighing on their operational expenses. These fiscal changes, including higher national insurance contributions and increased wage obligations, have placed considerable financial strain on smaller firms. Many have downsized as a result, contributing to a troubling trend of job losses. April marked the seventh consecutive month of falling employment in the services industry, with the pace of layoffs picking up slightly compared to the previous month.
The weakening conditions were starkly reflected in the latest S&P Global UK Services Purchasing Managers’ Index (PMI), which registered a reading of 49.0 in April—down significantly from 52.5 in March. Any reading below 50.0 signals contraction, and April’s result marked the lowest level of activity since January 2023. Although the overall decline in output was relatively modest, it signified a worrying reversal after moderate gains in early 2025. Business sentiment has also soured noticeably, with the number of firms expecting a downturn in activity over the next 12 months rising sharply. In April, 22% of surveyed businesses forecast a decline in activity, up from 14% the month prior and a dramatic increase from just 6% in July 2024 following the general election.
Adding to the anxiety, President Trump has continued to signal a hardline approach to trade. Over the recent weekend, he suggested imposing 100% tariffs on foreign-produced films—a move that has alarmed UK cultural and business leaders, who warn that such a policy could effectively dismantle the British film industry. The threat of further tariffs has fueled a growing atmosphere of risk aversion, with many UK firms reporting that clients are now deferring major investment decisions due to concerns about prolonged global volatility and geopolitical uncertainty.
Amid these developments, the Bank of England is widely expected to lower its benchmark interest rate from 4.5% to 4.25% in an attempt to support the weakening economy. Some economists believe the central bank may even signal a faster pace of monetary easing in the months ahead, depending on how sharply the economic data deteriorates. While the impact of Trump’s trade war on growth is becoming increasingly clear, its effects on inflation remain more ambiguous, posing a dilemma for policymakers who must navigate a path between stimulating growth and controlling prices.
The broader international context offers little comfort. The International Monetary Fund recently downgraded its forecast for UK economic growth in 2025 from 1.6% to 1.1%, although the UK is still expected to perform better than other major European economies such as France and Germany. A broader survey of the eurozone’s services activity showed a mild slowdown as well, with the bloc’s overall services PMI falling from 50.9 in March to 50.4 in April. While most eurozone countries maintained positive growth, France stood out negatively, having now registered economic contraction for eight straight months.
The reverberations of U.S. tariff policy are also being felt further afield. China, which has borne the brunt of Trump’s trade measures, reported that growth in its services sector slowed significantly in April. The Caixin China Services PMI slipped to 50.7, down from 51.9 the previous month, representing the weakest rate of expansion since September 2024. The decrease suggests that even large, resilient economies are struggling to maintain momentum in the face of rising global economic barriers.
Within the UK, various industries are seeing direct effects of the tariff fallout and broader financial market turbulence. Technology and financial services firms have reported that clients are increasingly cautious, with some postponing or canceling major investment projects. Consumer-facing service providers, such as those in hospitality, travel, and leisure, are contending with weak demand at home, compounded by rising labor costs and tightening margins. Business leaders in these sectors have reported that they are struggling to pass on the increased costs to customers, despite facing higher expenses due to elevated wage levels and fiscal contributions.
These rising input costs pushed business expenses up in April at the fastest pace seen since the summer of 2023. Many companies had to raise prices to maintain profitability, which led to a renewed uptick in consumer inflation. The situation presents a fresh challenge for the Bank of England, which must now weigh the risks of economic stagnation against the potential for inflationary resurgence.
The current pressures facing the UK services sector reveal a fragile economic environment caught between internal cost burdens and external trade shocks. With confidence declining, employment shrinking, and inflationary risks still present, the UK economy enters a delicate phase where careful policy decisions and international diplomacy will be crucial in determining whether this downturn becomes a temporary stumble or the start of a more prolonged slide.
