UK business activity falls for the first time since October 2023 as trade tensions hurt economy
Newsflash: Business activity across the UK has fallen for the first time in 18 months, as trade war fears batter the British economy.
The latest poll of purchasing managers at UK service sector companies has found that business activity declined in April, ending a 17-month run of growth, and pulling the wider private sector into a contraction.
New order books at services companies shrank last month, driven by the fastest decline in exports since February 2021, when the Covid-19 pandemic was hitting activity.
Data provider S&P Global says that “survey respondents widely commented on risk aversion and delayed spending decisions among clients in response to rising global economic uncertainty.”
This dragged the S&P Global UK Services PMI Business Activity Index down to 49.0 in April, down from 52.5 in March, which is the lowest reading since January 2023. Any reading below 50 signals a contraction.
The PMI report says:
While many firms continued to report unfavourable domestic demand conditions, the latest survey indicated a particularly marked decline in new work from overseas markets.
The rate of contraction was the steepest for just over four years and mostly linked by survey respondents to the impact of rising global trade tensions.
S&P Global also reports that the wider UK private sector also contracted last month.
Its UK PMI Composite Output Index, which also tracks the manufacturing industry, fell to 48.5 in April, down from 51.5 in March and below the 50.0 no-change value for the first time in one-and-a-half years.
Key events
Shares in Ford are set to fall when trading begins in New York in just under two hour’s time.
Ford’s stock is down almost 2.5% in premarket trading, after it withdrew its financial guidance last night and indicated tariffs could wipe $1.5bn off its profits this year.
Lisa O’Carroll
The EU has launched a market surveillance of Chinese imports into the bloc amid fears that the trade war with the US is diverting goods to Europe, my colleague Lisa O’Carroll reports.
It comes amid reports that discount online retailers Shein and Temu have upped their marketing spend in Europe after Donald Trump’s tariffs were introduced on all packages up to $800 in value on Saturday.
Trade commissioner Maros Sefcovic has again warned that the existing tariffs on the automotive and steel sectors along with the threat of tariffs in six other areas is “unacceptable”.
Speaking at the European parliament on Tuesday he again urged the US to cut a deal describing the EU as “by far the most important economic partner of the US”.
He said if Trump carries through his various threats of tariffs in addition to existing import duties on cars and steel, its import taxes would jump from €7bn in 2024 to €100bn.
He said:
“This situation is not acceptable and we cannot afford to stay idle.”
If the US doesn’t cut a deal, Europe is prepared for retaliatory tariffs and litigation, he warned.
In the meantime the EU has started monitoring potential diversion of trade from China to the US to Europe with the first results of the survey anticipated in mid-May.
“The aim is to protect the EU market from possible surges of imports from other countries that are also hit by US tariffs and which seek alternative markets. The first results of this work are anticipated in mid-May,” he said.
The decline in the UK private sector last month adds to the pressure on the Bank of England to ease monetary policy.
The BoE is widely expected to cut interest rates at its next meeting, on Thursday. The money markets indicate there’s a 92% chance of a quarter-point cut to Bank rate, to 4.25%, and an 8% possibility of a larger, half-point cut to 4%.
Daniela Sabin Hathorn, senior market analyst at Capital.com, sets the scene:
The Bank of England (BoE) is widely expected to deliver a rate cut at its upcoming meeting, as policymakers balance weak domestic growth with the inflationary risks stemming from global trade tensions. At its March meeting, the Monetary Policy Committee (MPC) voted 8-1 to keep the Bank Rate at 4.5%, with only external member Swati Dhingra advocating for a 25-basis-point cut.
At that time, persistently high inflation was a key factor in maintaining the current rate. Headline CPI had climbed back to 3% in January, and the BoE projects it could rise further to 3.75% by summer. Geopolitical uncertainty and renewed U.S. tariff threats have also prompted a cautious stance, even as domestic data shows lacklustre growth and hiring plans, while wage pressures in services remain elevated.
Governor Andrew Bailey reiterated the need for prudence, noting that while easing is on the table, it must be guided by “accumulating evidence that price pressures are easing,” and emphasizing that there is “no presumption about cuts at the next few meetings.
Thursday’s rate decision will be released at 12.02pm, incidentally, rather than bang on noon, due to the two-minute silence to mark VE Day.
Moody’s Ratings cuts global growth forecast due to trade war
Moody’s Ratings has cut its global growth forecast to 1.9% in 2025 and 2.3% in 2026, driven by tariff uncertainty and trade tensions.
Moody’s updated forecasts now predict:
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Reduced UK real GDP growth of 0.8% in 2025 and 1.3% in 2026.
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US real GDP growth to fall to 1% in 2025 and 1.5% in 2026, with inflation to hit 3% this year.
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China’s real GDP growth to slow to 3.8% in 2025 and 3.9% in 2026.
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In the Eurozone – Germany’s real GDP growth is expected to be 0% in 2025 and 1.4% in 2026, with slowdowns in France (0.5% in 2025 and 1.2% in 2026) and Italy (0.5% in 2025 and 0.6% in 2026).
European markets fall after Merz loses vote to become Germany’s chancellor
Back in the City, the early stock market gains have vanished.
The FTSE 100 index is now down 17 points, or 0.2%, at 8597, threatening to end its record-breaking run of 15 daily rises in a row.
The slide comes as European markets drop, led by Germany’s DAX which has fallen by 1.9% today. Frankfurt traders are alarmed that Friedrich Merz has failed to get enough votes to become chancellor in the first vote today in the Bundestag.
That’s quite a shock, as Merz had been expected to be rubber-stamped to succeed Olaf Sholz today.
His CDU/CSU/SPD coalition nominally has 328 votes in the Bundestag – but he got only 310, six short of the majority required to confirm him as the next chancellor.
It has prompted the far-right Alternative für Deutschland party calls for fresh elections in Germany.
Tesla sales drop 62% in April
Sales of Tesla cars tumbled by over 60% last month, amid a wider backlash against Elon Musk.
Just 512 new Tesla models were registered in April, the latest sales data from trade body the SMMT shows, down from 1,352 in April 2024.
Tesla’s market share shrank to 0.43% in April, down from 1% a year ago, as sales of battery electric vehicles (BEV) increased 8.1%.
Tesla’s sales have also been dropping across Europe this year, with some customer shunning the brand following Musk’s tilt to the political right.
But last month’s sales drop may also be due to model changes at Tesla. Deliveries of its latest Model Y, codenamed “Juniper”, were expected to begin in May, so customers may have been waiting for it to arrive.
In February, Tesla’s Model 3 and Model Y cars were the second and third most popular in the UK after the Mini Cooper. But both failed to make the top 10 in April, with Kia’s Sportage topping the list:
UK business expectations tumble
Worryingly, UK business expectations for the year ahead fell sharply last month.
This morning’s PMI report shows that service sector firms are bracing for an extended period of global economic turbulence and heightened recession risks.
Some 22% of the survey panel predict 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.
Tim Moore, Economics Director at S&P Global Market Intelligence, says:
“UK service sector output slipped into contraction for the first time in one-and-a-half years as heightened business uncertainty weighed on order books during April. Export conditions were particularly weak, with new business from abroad falling to the greatest extent since February 2021.
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.
UK business activity falls for the first time since October 2023 as trade tensions hurt economy
Newsflash: Business activity across the UK has fallen for the first time in 18 months, as trade war fears batter the British economy.
The latest poll of purchasing managers at UK service sector companies has found that business activity declined in April, ending a 17-month run of growth, and pulling the wider private sector into a contraction.
New order books at services companies shrank last month, driven by the fastest decline in exports since February 2021, when the Covid-19 pandemic was hitting activity.
Data provider S&P Global says that “survey respondents widely commented on risk aversion and delayed spending decisions among clients in response to rising global economic uncertainty.”
This dragged the S&P Global UK Services PMI Business Activity Index down to 49.0 in April, down from 52.5 in March, which is the lowest reading since January 2023. Any reading below 50 signals a contraction.
The PMI report says:
While many firms continued to report unfavourable domestic demand conditions, the latest survey indicated a particularly marked decline in new work from overseas markets.
The rate of contraction was the steepest for just over four years and mostly linked by survey respondents to the impact of rising global trade tensions.
S&P Global also reports that the wider UK private sector also contracted last month.
Its UK PMI Composite Output Index, which also tracks the manufacturing industry, fell to 48.5 in April, down from 51.5 in March and below the 50.0 no-change value for the first time in one-and-a-half years.
UK car sales drop 10% in April
Car sales across the UK fell by over 10% last month, compared to a year ago.
New industry data shows that 120,331 new vehicles were registered in April, 10.4% fewer than in April 2024.
The Society of Motor Manufacturers and Traders (SMMT) attributes “a fragile economic backdrop and weakened consumer confidence” for the sixth fall in the last seven months.
The SMMT also blames increases in Vehicle Excise Duty (VED) which began at the start of April – and which let to a jump in sales during March.
It says:
In what is traditionally a quieter month following the March plate change, volumes were also impacted by the late timing of Easter, resulting in fewer working days.
In addition, the implementation of VED changes affecting all new cars, including the Expensive Car Supplement which became applicable to many new EVs from 1 April, pushed transactions into March as shrewd buyers got ahead of the tax increases.
The drop in sales last month was broad-based, with private sales down 7.9% and purchases by businesses dropping by around 11%.
Battery electric vehicle sales jumped by 8.1% to 24,558 units, with a market share of 20.4%. Sales of plug-in hybrids (PHEV) jumped by 34.1%.
But sales of hybrid electric vehicles (HEVs) fell -2.9%, with petrol sales down 22% and diesel plunging by 26.2%.
Eurozone economic growth slows in April
Just in: growth across the eurozone private sector slowed last month.
The HCOB Eurozone composite PMI output index, which tracks activity across the euro area, has dropped to 50.4 for April, down from 50.9 in March, showing a weaker expansion in business activity.
The PMI index, based on data from purchasing managers at European firms, found that new orders fell last month, again, as demand weakened.
France’s private sector contracted for the eighth month running, while Germany’s private sector output barely rose in April. Ireland recorded the strongest increase in activity, while Spain and Italy also expanded.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:
“Eurozone economic growth slowed at the start of the second quarter, following a pick-up in the first three months of the year. The services sector, which is a major player, practically stagnated in April. Even though manufacturing output saw a surprising uptick, it wasn’t enough to prevent the overall slowdown in growth.
In the services sector, cost pressures are still relatively high, though they have eased a bit over the past couple of months. Inflation is down for sales prices and continued to trend lower.
Many members of the European Central Bank (ECB) have been hinting at another interest rate cut in June, and these latest figures seem to support their stance.
ABF in talks about selling Kingsmill bread division
Associated British Foods has confirmed it is in talks with the parent company of Hovis about selling its Allied Bakeries business.
ABF’s shares have risen by 1% after telling the City “it is in discussions with Endless LLP regarding a potential transaction” for Allied Bakeries, whose brands include Kingsmill, Allinson’s and Sunblest.
ABF told shareholders:
Allied Bakeries continues to face a very challenging market. We are evaluating strategic options for Allied Bakeries against this backdrop and we remain committed to increasing long-term shareholder value.
A further announcement will be made as and when appropriate.
ABF, which also owns Primark, reported last week that sales at Allied Bakeries fell in the 24 weeks to 1 March.
FTSE 100 on track to extend record-breaking run
Britain’s blue-chip share index is on track to extend its record-breaking run of gains.
The FTSE 100 share index has risen by 27 points, or 0.3%, in early trading, partly thanks to BP’s rally.
The ‘Footsie’ has already risen for the last 15 sessions in a row, the longest run of gains since it was created in the 1980s.
It has now recovered all its losses since 2 April, when Donald Trump announced a swathe of tariffs on trading partners:
Richard Hunter, head of markets at interactive investor, explains why the FTSE 100 has been gaining ground in recent weeks:
The FTSE100 remains something of a beacon of light compared to many of its global peers, with its suite of relatively stable and defensive sectors playing into investors’ desire for alternative investment destinations.
Coupled with an undemanding valuation both historically and globally, alongside an average dividend yield of 3.5%, the index has added 5.6% this year, and at the open further resilience was in evidence. A broad mark up incorporated both defensive and cyclical sectors, the latter of which resulted in some strength in the likes of the retailers and the housebuilders.”
BP shares jump as Shell mulls takeover
Shares in energy giant BP have jumped by 3.3%, following reports that rival Shell has considered a takeover bid.
BP’s shares rose to 361p at the start of trading, a one-week high, making it the top riser on the FTSE 100 share index.
Shell’s shares are down 0.7%.
City traders are responding to Bloomberg’s report last weekend that Shell has been discussing the feasibility and merits of a takeover of BP with its advisers in recent weeks.
My colleague Lauren Almeida reported:
If this were to happen, it would mark one of the biggest deals ever in the oil and gas industry.
Speculation about a possible takeover comes as BP’s shares have suffered this year. They have fallen by more than 30% in the past 12 months as a turnaround plan under the chief executive, Murray Auchincloss, has failed to inspire investors and oil prices have fallen.
Bloomberg also reported that Shell could decide to focus on share buybacks and bolt-on acquisitions rather than a megamerger, and that other large energy companies have also been analyzing whether they would want to bid for BP.
DoorDash’s takeover of Deliveroo agreed
The takeover of UK food-delivery platform Deliveroo by US rival DoorDash has been agreed.
The two sides have reached agreement on DoorDash’s offer of 180p in case for each Deliveroo share, made last month.
The deal values Deliveroo at £2.9bn, and is almost 30% higher than Deliveroo’s share price the day before the offer was made.
It’s less than half the value at which Deliveroo was floated on the London stock market four years ago, though.
Tony Xu, CEO and co-founder of DoorDash, says he has “long admired” Deliveroo’s team, including CEO Will Shu (who will pocket around £170m from the shares he owns):
Like DoorDash, Deliveroo is obsessively focused on their customers – consumers, merchants, and riders. They work day in and day out to improve their consumer value proposition, bring new services to local businesses, and offer flexibility and support to riders.
These efforts and attention to detail from Will and the team have had a tremendous positive impact in the communities where Deliveroo operates.
Barbie dolls to cost more in a tariff world
American children face paying higher prices for Barbie dolls due to the Trump tariffs on imports.
Mattel, the toy manufacturing giant, revealed last night that it plan to raise prices on American toys due to tariffs, and is also looking to move some manufacturing out of China.
In its latest earning report, Mattel told shareholders it is taking “mitigating actions” to fully offset the potential incremental cost impact of tariffs on future performance.
Those measures include:
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Accelerating diversification of its supply chain and further reducing reliance on China-sourced product,
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Optimizing product sourcing and product mix, and
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Where necessary, taking pricing action in its U.S. business.
Chief financial officer Anthony DiSilvestro explained:
Given the evolving tariff situation, we are taking mitigating actions designed to fully offset the potential incremental cost impact.
Paying more for a new Barbie, or Ken, might highlight the impact of tariffs for US consumers.
Donald Trump, though, argued last weekend that “a young lady” doesn’t need 37 dolls, and might be “very happy with two or three or four or five.”..
Philips lowers profit margin guidance over trade tensions
Dutch medical-technology firm Philips has lowered its outlook for profitability this financial year, blaming the US trade war.
In its latest financial results, Philips trimmed its profitability outlook for the year, as it calculated “the assumed impact of currently announced tariffs”.
Philips now expects an estimated net tariff impact of €250m to €300m “after substantial tariff mitigations”, and has lowered its forecast for its adjusted operating earnings margin by one percentage point, to 10.8% to 11.3%.
Roy Jakobs, CEO of Royal Philips, explains:
In an uncertain macro environment that has intensified due to the potential impact of tariffs, we are focused on what we can control.
We are improving our supply chain agility, taking decisive cost actions to mitigate financial impact where possible, and ensuring we can continue to serve our customers and consumers.
Philips makes medical devices such as MRI and CT scanners, and has been using artificial intelligence (AI) to speed up results:
Ford expects $1.5bn profit hit from Trump tariffs
America’s car industry is calculating the cost of the trade wars.
Overnight, Ford Motor suspended its annual guidance, due to “tariff-related uncertainty”, and estimated new tariffs would cost it about $1.5bn (£1.1bn) of profits this financial year.
Ford CEO Jim Farley told analysts:
“It’s still too early to fully understand our competitors’ responses to these tariffs,”
“It’s clear, however, that in this new environment, automakers with the largest U.S. footprint will have a big advantage.”
Last week, Donald Trump’s 25% import tax on engines, transmissions and other key car parts came into force, a move that will push up costs for automakers.
Ford had previously predicted it would post earnings before interest and taxes of between $7bn and $8.5bn this financial year.
But with uncertainty over how the trade war will play out, Ford told investors that guidance was now suspended, explaining:
Given material near-term risks, especially the potential for industrywide supply chain disruption impacting production, the potential for future or increased tariffs in the U.S., changes in the implementation of tariffs including tariff offsets, retaliatory tariffs and other restrictions by other governments and the potential related market impacts, and finally policy uncertainties associated with tax and emissions policy, the company is suspending guidance.
China’s services growth hits seven-month low as tariffs bite
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Investors will be scrutinising the latest healthchecks on companies across the world today, for signs that the US-China trade war is hurting the global economy.
And… the latest purchasing manager’s survey data has shown that China’s service sector activity growth has hit a seven-month low, as business confidence fell to the lowest since early in the Covid-19 pandemic.
The Caixin China General Services Business Activity Index, released this morning, fell to 50.7 in April, down from 51.9 in March. That shows the slowest rise in activity since last September – but still above the 50-point mark that signals stagnation.
China’s service sector firms reported a slowdown in new business, while business sentiment fell to the lowest level seen since February 2020, while companies continued to cut staffing levels.
The report says:
The slowdown in business activity growth reflected the trend seen for new business. Disruptions to goods trade amid fresh tariffs had negatively impacted some service providers in April, according to anecdotal evidence, and led to the slowest rise in overall new work for 28 months.
New export business increased only fractionally, with some firms noting improved foreign demand amid rising tourism activity.
Data yesterday showed that the US services sector’s growth picked up in April, while the prices paid by American firms for materials and services jumped, indicating that the tariffs announced by the Trump administration are fuelling inflation.
The financial markets are looking for progress in trade talks between the US and its trading partners. Yesterday, treasury secretary Scott Bessent told CNBC that he believes the U.S. is “very close to some deals.”
Bessent explained:
“As President Trump said last night on Air Force One, maybe as early as this week.”
He added that there could be “substantial progress in the coming weeks” with China; last week, Beijing signalled it was “assessing” potential trade talks with the U.S….
The agenda
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9am BST: UK car sales data for April
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9am BST: Eurozone services sector PMI report for April
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9.30am BST: UK services sector PMI report for April
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3.10pm BST: US RCM/TIPP Economic Optimism Index
