Donald Trump’s tariffs set the mood in UK businesses to the lowest in almost two and a half years, though economists said this will not necessarily force the Bank of England into a "jumbo" rate cut next month.
British business sentiment in the first three weeks of April has been measured by the S&P Global purchasing managers' index (PMI) survey, where a 'flash' reading fell to 48.2 in April, from 51.5 in March. This was well below the consensus forecast of 50.4.
This was a composite PMI reading, made up of an average of the services PMI, which dropped to 48.9 from 52.5 in March and below the 51.5 consensus, and the manufacturing output index, which fell to 44.0 from 45.3 in March.
If this preliminary PMI is confirmed at the final reading at the start of May, it will be lowest since November 2022.
S&P Global noted that survey respondents "widely commented on the negative impact of US tariffs and a subsequent slump in confidence among clients".
The impact of Donald Trump's tariffs saw the manufacturing export orders balance crater to 36.3, the weakest since February 2009 apart from the Covid pandemic.
While this data could, in isolation, be translated into a worrying forecast for a small UK recession, economists recommended against reading too much into the PMI, though there was much for the Bank of England's monetary policy committee to ponder.
"The PMI survey picks up sentiment in addition to actual changes in output and overreacts to political events and uncertainty," said Rob Wood, chief UK economist at Pantheon Macroeconomics, pointing to the massive drop in the composite PMI after the Brexit referendum that saw actual GDP still grow solidly.
"There is no doubt that the chilling effect of the US President’s tariffs has slowed UK growth, but we seriously doubt the UK economy has suddenly dropped into recession," said Wood, estimating a 0.1% quarter-to-quarter GDP growth in Q2 and Q3.
"The MPC will take the PMI with a pinch of salt too and will therefore fail to be bounced into a jumbo 50bp rate cut by the weak readings," he added, while acknowledging that rate setters cannot afford to completely ignore the PMI's data on employment that suggests heightened uncertainty is hitting growth across the domestic economy too.
Kathleen Brooks, head of research at XTB, said financial markets were "mostly ignoring" the dismal PMI data for April.
"Perhaps because these surveys could already be out of date," she said.
"If tariffs between the US and China, along with the rest of the world, continue to decline then this could protect economic growth and boost sentiment down the line. However, it may not help the UK’s fiscal position.
"Although the bond market has not reacted to the higher-than-expected March borrowing figure, the government may well have to cut public spending further, as wage costs and higher benefit costs pushed up the government’s borrowing needs, which is now becoming a habit for the UK’s labour government."