UK services sector contracts for the first time in 17 months amid Trump tariff fears

The UK services sector, which contributes approximately three-quarters of the country’s overall economy, saw its first contraction in 17 months this April. This downturn comes as global economic uncertainties, triggered by Donald Trump’s aggressive tariff policies, begin to bear down on domestic and export-oriented businesses alike. The S&P Global UK services PMI activity index fell to 49.0 in April from 52.5 in March. A reading below 50.0 indicates contraction, marking the weakest performance since January 2023.

Concerns have been growing among business leaders over the impact of US-imposed trade tariffs. Industry reports show that export orders declined at the fastest rate since February 2021, a period marked by the global Covid-19 pandemic. Many survey respondents cited risk aversion among clients, with spending decisions being delayed. This increasing hesitancy, combined with Rachel Reeves’s recent tax policies, has pressured smaller businesses to cut costs by accelerating redundancies during April.

On the domestic front, the consumer-facing parts of the service sector continue to grapple with rising payroll expenses due to higher national living wages and increased national insurance contributions. These cost pressures are being passed on to consumers, contributing to a notable rise in inflation. Input price growth reached its steepest pace since the summer of 2023.

Broader financial uncertainty adds to worries, with industries like technology and financial services reporting weakened client confidence. Businesses noted delays in major investment plans, a clear sign of cautious behaviour amidst global market volatility. The hospitality and leisure sectors have also been particularly affected by restricted consumer spending power, exacerbating the challenges faced by these industries.

The release of these data precedes the Bank of England’s anticipated interest rate adjustment later this week. Market forecasts suggest a reduction from 4.5% to 4.25%. Analysts also expect the central bank to hint at quicker rate cuts should economic conditions deteriorate further. Notably, the International Monetary Fund recently slashed the UK’s growth estimate for 2025 from 1.6% to 1.1%. However, the UK is still projected to outperform other European economies, including France and Germany.

Looking abroad, the eurozone has also recorded a weakening momentum in its services sector. Data showed only marginal growth, with France contracting for the eighth consecutive month. Similarly, China’s services sector registered its slowest growth in seven months. The global shockwaves of Trump’s tariff strategies appear to be shrinking demand and heightening uncertainty across multiple geographies.

These results underline the fragility of the UK services sector in an interconnected global economy. With tax increases, conflicting tariff policies, and inflationary pressures converging, businesses face tough decisions ahead.