UK Economy Shrinks Is This the Trade Deal Fallout?

European Stocks Wobble as UK Economy Shrinks; FTSE 100 Remains Choppy

European stock markets faced headwinds today, with the UK's FTSE 100 experiencing particular volatility. This follows newly released data revealing a sharper-than-expected contraction in the UK economy, adding to investor anxieties and fueling uncertainty across the continent.

Adding to the economic woes, the Office for National Statistics (ONS) revealed a staggering drop in U.K. goods exports to the U.S. in April. The figures showed a £2 billion ($2.71 billion) decline, marking the largest monthly drop since records began in 1997. This significant downturn raises concerns about the impact of existing trade policies and their effect on the UK's economic performance.

The ONS attributed the export slump to the implementation of tariffs on goods imported into the United States. The value of exports hit its lowest point since February 2022, highlighting the tangible consequences of trade barriers.

Key highlights from the ONS report include:

• £2 billion drop in UK goods exports to the US in April.
• Lowest export value since February 2022.
• US imports to the U.K. fell by £400 million for the month.

While the U.K. and U.S. announced the framework of a trade agreement in early May, its full implementation remains a work in progress. The agreement currently imposes 10% blanket tariffs on British goods shipped stateside and has yet to address the 25% duties on steel, aluminum, and autos. This incomplete agreement continues to stifle trade and weigh on the UK's export potential.

The broader trade picture also paints a concerning narrative. The U.K.'s trade deficit in goods rose by £4.4 billion to £60 billion in the three months leading up to April. Simultaneously, its trade surplus in services experienced a dip of £500 million, settling at £48.5 billion. This widening deficit underscores the challenges faced by the UK in balancing its import and export activities.

In summary:

1. UK goods exports to the US suffered a record drop in April.
2. Existing tariffs are cited as a primary cause.
3. The UK's overall trade deficit has widened significantly.

The data released today presents a mixed bag of challenges and opportunities for the UK economy. While the drop in exports and the widening trade deficit are cause for concern, the ongoing negotiations with the U.S. offer a pathway toward improved trade relations. The key will be securing a comprehensive agreement that eliminates existing tariffs and promotes a level playing field for British businesses. The current situation underscores the critical importance of proactive trade policies in navigating the complexities of the global economy and ensuring long-term economic stability.

Tags: UK exports, US tariffs, Trade deficit, US imports, UK trade, Trade deal, Goods exports, Steel tariffs, Aluminum tariffs, Auto tariffs

-- Jenni Reid

Source: https://www.cnbc.com/2025/06/12/european-markets-on-june-12-stoxx-600-ftse-dax-cac-40.html