The GBPUSD exchange rate fell by around 0.25% to 1.3550, and 2-year gilt yields declined to 4.32% following the release of weaker macroeconomic data for April.
What the data showed
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GDP contracted by 0.3% month-over-month, marking the first decline in six months. This was well below economists’ expectations, who had forecast a 0.1% decline. However, on a three-month basis, output rose by 0.7%, showing that strong data from February and March softened the impact of April’s drop.
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Industrial production fell by 0.6%, and manufacturing output by 0.9%. The biggest drag came from the transport equipment sector, which saw a decline of over 5%, as several manufacturers (including those in the auto industry) halted assembly lines.
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Service sector activity also declined by 0.4%, mainly due to a slowdown in legal and real estate services, which were affected by a prior surge in housing transactions ahead of a tax rate change.
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Construction was the only standout sector, growing 0.9%, supported by good weather and delayed infrastructure projects.
Mutual tariffs between the U.S. and the UK, which were in place for part of April, forced companies like Jaguar Land Rover to pause production and led to a £1.6 billion drop in British exports to the U.S. — the largest monthly decline on record. The new UK–U.S. trade agreement signed in May is expected to help restore production.
Additionally, in the real estate sector, buyers rushed transactions in March to avoid higher fees, resulting in unusually low activity in legal and real estate services in April. Early data on mortgage approvals suggest that activity is already rebounding.
Industrial production data also showed a decline largely due to manufacturers drawing down inventories stockpiled in Q1 in anticipation of tariffs, which temporarily reduced output. These disruptions appear to be temporary and should ease as the second quarter progresses.
April’s GDP stumble seems more like a “tariff hole” than the start of a lasting slowdown. Most of today’s weakness is likely to prove transitory.
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