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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.
While the latest index reading signalled only a marginal decline in overall output, after a period of modest growth in the first quarter of 2025, the outlook was clouded by the likelihood of further US tariffs.
The latest signal from the White House came over the weekend when Trump said he was considering imposing 100% tariffs on foreign-made films. Ministers have been warned that such a move could “wipe out” the UK film industry.
“Survey respondents widely commented on risk aversion and delayed spending decisions among clients in response to rising global economic uncertainty,” the report said.
Among the survey panel, 22% predicted an outright decline in business activity during the next 12 months, up from 14% in March and well above the post-election low of 6% in July 2024.
The Bank of England is expected to reduce interest rates to 4.25% from 4.5% on Thursday amid concerns that the central bank will need to move more quickly to cut borrowing costs to avoid a more prolonged downturn.
Some analysts said the Bank could signal a quicker pace of cuts further ahead. Threadneedle Street policymakers have said Trump’s trade policies will hit growth although the impact on inflation is not yet clear.
The International Monetary Fund last month cut its forecast for the UK’s economic growth in 2025 to 1.1% from a previous estimate of 1.6%, but said the country was likely to grow more strongly than its peers in Europe including France and Germany.
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Lower employment numbers have been recorded by S&P Global in each of the past seven months and the pace of job-shedding accelerated slightly since March, the report added.
Tim Moore, economics director at S&P Global Market Intelligence, said: “Survey respondents often commented on the impact of global financial market turbulence in the wake of US tariff announcements. Businesses in the technology and financial service sectors noted rising risk aversion and delayed spending decisions among clients, especially in relation to major investment plans.
“Consumer service providers, meanwhile, cited subdued domestic economic conditions and challenges with passing on rising payroll costs, especially those in the hospitality and leisure sectors,” he added.
In a warning about the potential for inflation to rise strongly again, the report said input prices increased at the steepest pace since the summer of 2023, mostly as higher national living wage rates and national insurance contributions took effect.
Many businesses passed on the extra costs, pushing consumer price inflation higher in April.
