May 2025 monthly update

Read our May monthly update – a roundup of the latest financial news and economic headlines.

UK agrees new trade deal with EU

The UK and European Union (EU) have reached a landmark trade agreement. According to the government, it is designed to improve economic ties and boost British exports. As such, the deal is expected to contribute £9bn to the UK economy by 2040 due to key aspects aimed at simplifying trade between the two blocs. The government stated the package will also “help make food cheaper, slash red tape, open up access to the EU market.”[1]

It is, however, far from an undoing of Brexit. The country will not re-enter the single market nor the customs union, and while the deal will facilitate talks about a youth mobility scheme for 18-30-year-olds, it will not bring back freedom of movement.[2]

One of the provisions in the deal will reduce checks on British food exports, such as raw burgers and sausages, that were previously banned by EU regulations after Brexit.[3] The British Retail Consortium (BRC) praised these new parameters with their chief executive, Helen Dickinson, stating that this will “[ensure] the ongoing availability of key food imports for British shoppers.”[4] Although, this is in exchange for the EU retaining access British waters until 2038. The UK will, however, still negotiate yearly quotas with Europe and issue licences to control who fishes in its waters. Alongside this, a “fishing and coastal growth fund” will invest £360m into new technology and equipment.[5]

Other aspects of the deal include a formal UK-EU defence and security pact wherein both sides will coordinate sanctions, share information, and develop a space-related security policy. Consequently, this “paves the way” for UK-based arms firms to access the EU’s £150bn Security Action for Europe (SAFE) fund, which provides loans for defence projects. Furthermore, the two blocs will link their carbon markets, preventing British firms from being penalized by the upcoming EU carbon tax. It is projected to save the government £800m in taxes, as well as shielding British steel from EU tariffs.[6]

“It’s time to look forward. To move on from the stale old debates and political fights to find common sense, practical solutions which get the best for the British people,” said Prime Minister Keir Starmer at the summit where the agreement was finalised. “We’re ready to work with partners if it means we can improve people’s lives here at home.”[7]

Government plans major welfare spending cuts

The government have doubled down on their planned £5bn in cuts to disability benefits. Work and Pensions Secretary Liz Kendall explained her rationale as reforming the welfare state to save it from collapse. In her view, eligibility for some benefits should be restricted or the cost of the system will spiral out of control.[8]

Specifically, the changes will affect the Personal Independence Payment (PIP) and the health component of Universal Credit (UC). Kendall’s reforms seek to reduce the PIP caseload by 400,000 claimants by 2030. Consequently, individuals suffering from conditions such as arthritis, chronic pain, cardiovascular syndromes, back pain, and mental health disorders like depression, may become ineligible for PIP. Meanwhile, cuts to UC aim to encourage claimants assessed as having “limited capability for work-related activity” to move to the basic rate and into work instead.[9] Furthermore, the welfare package allocates £1.8bn in additional spending on back-to-work measures.

The proposed reforms have garnered significant backlash from MPs with Labour members threatening to rebel. Over 100 backbenchers signed a private letter to party whips stating that they will not support the package. In tandem, labour market experts warned that any increase in employment figures is likely to be dwarfed by the impact of the cuts.[10]

UK economy beats forecasts and G7 in growth figures

In an unexpected turn, the UK’s economy grew by 0.7% at the start of 2025. Furthermore, analysts had predicted no growth for March but the month actually saw an expansion of 0.2%. Typically, this means that more jobs were created, people earned more and, in turn, could spend more. The Office for National Statistics (ONS) highlighted spending on services—like retail, hospitality, and finance—as key drivers of the boost.[11]

Quarter-on-quarter, Britain’s GDP growth surpassed the rates seen in its G7 peers – particularly the USA, which shrunk by 0.07%. Similarly, GDP per person rose by 0.5%, following two consecutive quarters of falls, and export volumes increased by 3.5% in the same period. [12] In response, the pound sterling edged up against the American dollar.[13]

Reactions to the news were mixed. Suren Thiru, Economics Director at ICAEW believes that the first-quarter growth spurt is temporary and due to some businesses hurrying to fulfil orders before US tariffs took hold.[14] Meanwhile, Liz Martins, Senior UK Economist at HSBC disagrees. “Business investment is up nearly 6% on the quarter and the service sector is doing well as well. So it’s not just manufacturers selling to the US to get ahead of the tariffs.”[15]

However, according to the BBC, the effects of economic expansion may not be felt that widely. At the start of April, the population had to contend with rising energy, water, phone and broadband bills, as well as increases in Council Tax, Car Tax, and TV licences.[16]