The UK economy shrank more than expected in April as the worst of President Trump’s tariffs hit.

The standard measure of economic output (GDP) contracted a sharp 0.3% in April, data from the Office for National Statistics (ONS) showed.

During the month, Mr Trump’s so-called “Liberation Day” applied steep tariffs to countries around the world and sparked a trade war with China, the world’s second-largest economy.

The outcome is worse than expected by economists. A contraction of just 0.1% had been forecast by economists polled by the Reuters news agency.

It’s also down from the growth of 0.2% recorded in March.

Blow for Reeves

It’s also bad news for Chancellor Rachel Reeves, who has made the push for economic growth her number one priority. Speaking to Sky News following the news, she described the figures as “disappointing”.

Additional costs on businesses were also levied during the month, as higher minimum wages and employer national insurance contributions took effect, which businesses told the ONS played a part in their performance.

Why?

The biggest part of the economy, the services sector, contracted by 0.4%, and manufacturing dropped 0.9%.

There was the largest ever monthly fall in goods exported to the United States, the ONS said.

Decreases were seen across most types of goods due to tariffs, it added.

Higher stamp duty depressed house buying and meant legal and real estate firms fared badly in the month.

After a strong showing in the first three months, car manufacturing performed poorly.

Sky News’ Sam Coates and Politico’s Anne McElvoy serve up their essential guide to the day in British politics.

Rachel Reeves has said this morning that the latest figures showing the UK economy has shrunk by more than expected are “disappointing”. How much will this overshadow yesterday’s major spending announcement?

The chancellor has now planted Labour’s fiscal flag in the sand – and spending mistakes from here on in certainly cannot be blamed on their predecessors. How will Labour react to a potential internal revolt over disability benefit cuts? And how will the party manage the politics around expected tax rises in the autumn?

The chief secretary to the Treasury has called the Sky News-Chat GPT spending review projection “pretty good” and scored it 70%.

Darren Jones compared the real spending review, delivered by Rachel Reeves on Wednesday, and the Sky News AI (artificial intelligence) projection last week.

Sky News took the Treasury’s spring statement, past spending reviews, the ‘main estimates’ from the Treasury website, and the Institute for Fiscal Studies’ projections, and put them into ChatGPT, asking it to calculate the winners and losers in the spending review.

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This was done 10 days ahead of the review – before several departments had agreed their budgets with the Treasury – on the basis of projections based on those public documents. It also comes amid a big debate kicked off by Sky News about the level of error of AI.

The Sky News-AI projection correctly put defence and health as the biggest winners, the Foreign Office as the biggest loser, and identified many departments would lose out in real terms overall.

It suggested the education budget would be smaller than it turned out, but correctly highlighted the challenges for departments like the Home Office and environment.

Watch what happened with Sky’s AI-generated spending review

Reviewing the exercise, the author of the real spending review told Sky News that this pioneering use of AI was “pretty, pretty good”.

He added: “I could be out of a job next time in 2027, which to be honest, it’s not a bad idea given the process I’ve just had to go through.”

The Treasury made a number of accounting changes to so-called “mega projects” which AI could not have anticipated, and changed some of the numbers.

Asked to give it a score, Mr Jones replied: “I’m going to give it 70%.”

The spending review includes AI as a tool to save money in various government processes.

Asked if 70% accuracy is good enough for government, he replied: “Well we’re not using your AI. We’ve got our own AI, which is called HMT GPT, and it helps us pull together all the information across government to be able to make better, evidence-informed decisions.”