UK economy fell into recession at the end of 2023
Official data indicates that the UK entered a recession in the final quarter of the previous year, as the economy contracted more than anticipated.
Gross domestic product (GDP), a crucial gauge of economic performance, declined by 0.3%, marking a second consecutive quarterly decrease following a downturn between July and September.
The country enters a recession when GDP contracts for two consecutive three-month periods. This development prompts questions regarding whether Rishi Sunak has fulfilled his commitment to stimulate economic growth, one of five assurances made by the Prime Minister in January 2023.
However, the government’s criteria for evaluating Sunak’s performance remain unclear.
Throughout 2023, the economy expanded by a modest 0.1%. Nonetheless, excluding the COVID-affected years, this annual growth rate represents the weakest performance since 2009, during the aftermath of the global financial crisis.
Shadow Chancellor Rachel Reeves remarked that the latest data suggests Sunak’s economic growth pledge lies in ruins.
Meanwhile, Chancellor Jeremy Hunt is on the verge of presenting the upcoming Budget, scheduled for less than three weeks from now.
The government views increasing GDP as a sign of effective economic management, while opposition parties criticize GDP decline as indicative of poor governance.
A rising GDP implies higher tax revenues due to increased earnings and spending, thereby providing the government with more funds to allocate toward public services such as education, law enforcement, and healthcare.
Additionally, governments monitor their borrowing levels relative to the size of the economy.
Treasury insiders have informed BBC News that the chancellor is considering a more significant reduction in public spending to facilitate tax cuts in the March 6 Budget presentation.
Forecasts for the public finances have materially deteriorated in recent weeks as interest costs on UK government borrowing have increased. Final decisions have not been made.
Commenting on whether or not Mr Sunak had fulfilled his pledge to grow the economy, Mr Hunt told the BBC: “When the prime minister made his commitment he was very clear, tackling inflation had to come first.
“The big picture is that actually since then the economy has been more resilient, unemployment has stayed low, and real wages have been rising now for six months. And if we stick to our guns now, we can see light at the end of the tunnel.”
But Mr Reeves said: “This is Rishi Sunak’s recession and the news will be deeply worrying for families and businesses across Britain.”
Ruth Gregory, the deputy chief UK economist at Capital Economics, said “This recession is as mild as they come”, adding that the data “is more politically significant than it is economic”.
However, Lord Rose, chairman of Asda, the supermarket group, told BBC Radio 4’s Today program: “It looks like a duck, it quacks like a duck, it walks like a duck, it is a duck – it is a recession.
“It doesn’t matter if it is a technical recession or not. There is no surprise here and I take no pleasure in saying there is no surprise that we’re in it. We’ve got a low-growth economy or a no-growth economy.”
Figures from the Office for National Statistics (ONS) showed that during the final three months of last year, there was a slowdown in all the main sectors it measures to determine the health of the economy, including construction and manufacturing.
The figure for the final three months of last year was worse than a 0.1% fall widely forecast by financial markets and economists.
GDP for the third quarter, between July and September fell by 0.1%.
Mr Hunt said: “While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.”
Recent figures showed that inflation – which measures the pace of price rises – remained at 4% in January. That is twice the Bank’s 2% target.
The Bank of England had been lifting interest rates to put the brakes on inflation but has kept them at 5.25% since August last year.
Ms. Gregory said the latest economic figures “might nudge the Bank of England a little closer to cutting interest rates”.
“But we doubt the Bank will be too worried about what is likely to be a mild and short recession,” she added.
