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.
Closing post
Time to recap…
A 17-month period of expansion in the UK’s services sector came to an abrupt end in April as uncertainty created by Donald Trump’s tariff war hit new orders and exports.
A poll of purchasing managers in services businesses showed that the US president’s tariff campaign had sent a chill through the sector, which accounts for about three-quarters of the UK economy, hitting business confidence about the prospects for the years ahead.
Service sector export sales were particularly subdued, with total new work from abroad decreasing at the fastest pace since February 2021, during the Covid pandemic.
Smaller domestic services companies also said tax increases introduced by the chancellor, Rachel Reeves, were weighing on costs and had led to them laying off workers at a faster rate in April.
At 49.0 in April, down from 52.5 in March, the headline seasonally adjusted S&P Global UK services PMI activity index was the lowest since January 2023. A score of more than 50.0 represents expansion.
In other news…
The US trade deficit has widened to a record level in March, as American companies scrambled to import goods before new tariffs came into effect.
Britain and India have agreed a long-desired trade deal that ministers said would add £4.8bn a year to the UK economy by 2040.
The deal promises a boon for the UK’s car and alcohol industries, which have suffered from the impact of Donald Trump’s tariffs in the US.
India’s tariffs on British whisky and gin will be halved from 150% to 75% before reducing to 40% by the 10th year of the deal, according to the business department.
UK car sales have dropped 10% in April, a decline blamed on “a fragile economic backdrop and weakened consumer confidence.
Ford, Mattel and Ferrari have all warned that tariffs will eat into their profits.
The Irish government revised down its economic outlook as global trade uncertainty caused by US President Donald Trump’s tariff tirade threatens growth.
Canada is likely to fall into recession this year due to the US trade war, ratings agency Fitch warned.
FTSE 100’s record run continues
The UK stock market’s longest running winning streak on record just got a little longer!
The FTSE 100 index of blue-chip shares in London has ended the day up one point, or 0.07%, at 8597 points.
That means the Footsie has now risen for 16 sessions in a row, extending the record set at the end of last week.
Gold miners led the FTSE 100 risers today, with Endeavour Mining up 5,2% and Fresnillo gaining 4.7%, followed by supermarket chain Sainsbury’s (3.4%).
This rally means the FTSE 100 has recovered all the losses it suffered in early April, when it plunged to just 7,544 points in the market panic after Donald Trump’s “Liberation Day” tariff announcement.
The recovery began when the president u-turned, and delayed most tariffs for 90 days.
Treasury Secretary Scott Bessent has said today that the U.S. is in the midst of negotiations with 17 of the country’s largest trading partners, Fox Business report.
In testimony to the House Appropriations Subcommittee on Financial Services and General Government, Bessent explained that the timing of trade deals “will be path dependent on our trade partners.”
He added:
“As I’ve said before, there are 18 very important trading relationships. We are currently negotiating with 17 of those trading partners. China we have not engaged in negotiations with as of yet.”
“Approximately 97% or 98% of our trade deficit is with 15 countries, 18% of the countries are major trading partners, and I would be surprised if we don’t have more than 80% or 90% of those wrapped up by the end of the year.”
With around 40 minutes trading to go, it’s nip-and-tuck whether the London stock market will extend its record-breaking run.
The FTSE 100, which has risen for the last 15 sessions, is curently down 2 points today at 8593 points.
So shortly after 4.30pm today, after the closing auction, we’ll know if the rally has faltered…
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.
-
Dow Jones industrial average: down 273 points, or 0.66%, at 40,945 points
-
S&P 500: down 39 points, or 0.7%, at 5,611 points
-
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.