UK Economy shrinks despite US Trade deal as Analysts expect slower growth

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The UK economy shrank by 0.1% in May, according to the Office for National Statistics (ONS), defying analyst expectations of a 0.1% expansion. This contraction follows a 0.3% decline in April, which was affected by domestic tax rises and US President Donald Trump’s tariffs on trading partners.

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Despite the UK striking a trade deal with the US, becoming the first country to do so, the economy faces domestic headwinds. The first quarter’s 0.7% GDP expansion is unlikely to be repeated in subsequent quarters, with economists expecting slower growth due to a weaker job market and economic uncertainty

Sanjay Raja, chief UK economist at Deutsche Bank, said, “Where to next? Relative to our baseline projections, downside risks have emerged around our Q2-25 and 2025 annual projections.” He added that the “awful April” GDP print would impact quarterly GDP projections, with nowcasts running closer to 0.1-0.2% quarter-on-quarter versus the official projection of 0.25%. “This also raises a tenth downside to our annual growth projection of 1.2%,” Raja noted.

The Bank of England forecasts a 1% growth rate in 2025, amid ongoing economic challenges. The first estimate of Q2 GDP is due on August 14

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