UK Economy April 2025: A Mixed Bag of Resilience and Risks
Contrasting sector trends, a shaky export environment, and cautious optimism in property markets shape the UK’s economic outlook.
Diverging Fortunes Across Sectors
The UK economy started 2025 on uncertain footing, with overall output dipping by 0.1% in January. The production sector faced the biggest setbacks, shrinking by 0.9% as mining, quarrying, and manufacturing activities declined. Mining and quarrying saw the sharpest drop at 3.3%, while manufacturing output fell by 1.1%. However, pockets of strength remain in areas like food production, metal products, and repair services, which managed to hold steady through a tough 2024.
Construction output also softened slightly, falling by 0.2%. Despite this, hopes for renewed growth linger, fuelled by anticipated public spending on housing and infrastructure projects.
Meanwhile, the services sector offered a glimmer of resilience. Services grew by 0.1% in January and by 0.4% over the preceding three months, buoyed by solid performances in health services, administration, and retail. Encouragingly, businesses reported a healthy pipeline of future work, suggesting this momentum could continue.
Exports Continue to Struggle
The export environment remains challenging. UK merchandise exports declined throughout 2024, with shipments to the EU down 6% and to non-EU countries nearly 4% lower than the previous year. Global demand remains weak, and competition from emerging markets is intensifying.
On top of this, businesses face persistent trade barriers, including complex paperwork, customs delays, and logistics hurdles. Brexit-related changes continue to complicate trade, and uncertainty over future US tariffs adds further concern. Worryingly, UK manufacturing exports are declining more sharply than in the eurozone, where contractions have begun to ease.
Growth Forecasts Cut, Fiscal Tightening Ahead
The Office for Budget Responsibility (OBR) has lowered its forecast for UK economic growth in 2025 to 1%, down from its earlier projection of 2%.
This downgrade reflects softer productivity, rising energy prices, subdued business and consumer confidence, and ongoing geopolitical risks.
Inflation is expected to rise modestly, mainly driven by higher energy and regulated costs. Household spending should gradually recover as savings rates fall, although near-term consumption is likely to remain restrained.
The government’s fiscal outlook has also weakened, with higher debt interest payments and lower tax receipts adding pressure. In response, the Chancellor announced reforms to welfare spending and departmental budgets while maintaining commitments to defence and housing investments. These measures are designed to meet fiscal rules, but with little room for error, future shocks could trigger further tax hikes or spending cuts.
Sterling Strengthens but Volatility Looms
Sterling has enjoyed a modest rise against the US dollar in early 2025, supported by stronger retail sales and inflation forecasts. However, this positive trend may be short-lived. Analysts expect increased currency volatility as new tariffs and geopolitical uncertainties unfold. Sterling’s trajectory will closely follow developments in economic confidence and public finance updates.
Buy-to-Let Market Finds Its Footing
The buy-to-let (BTL) market rebounded in late 2024, driven by lower interest rates and sustained rental demand. In Q4 2024, over 52,600 new BTL loans were issued, totalling £9.6 billion — a sharp year-on-year increase. Falling interest rates improved affordability, and arrears declined, signalling healthier conditions for landlords.
However, challenges persist. Regulatory changes, including a new 2% stamp duty surcharge, are expected to temper activity, with forecasts pointing to a 7% contraction in the BTL market during 2025.
Looking Ahead
April brings further insights, with updates expected on buy-to-let mortgages and consumer card spending. For businesses and policymakers alike, the coming months will be critical. Clear strategies on industrial policy, small business support, and international trade are essential for steering the economy through its current uncertainties and laying the groundwork for sustainable growth.
Conclusion
The UK economy enters the spring with a fragile balance. Services and housing investments are helping to hold the line, but ongoing challenges in production, exports, and public finances are hard to ignore. With limited fiscal headroom and external risks looming large, the next few months will be pivotal. Staying agile, focused on long-term priorities, and prepared for volatility will be key for businesses and policymakers navigating this uncertain landscape.
Related Services: UK Tax Outsourcing