UK Economy Falls Into Recession

Official data released on Thursday revealed that the UK economy slipped into a recession following two consecutive quarters of negative economic growth in the latter part of last year.

The Office for National Statistics stated that the gross domestic product contracted by 0.3 percent in the fourth quarter of 2023, following a 0.1 percent decline in the preceding three months, meeting the technical criteria for a recession.

Official data released on Thursday revealed that Britain entered a recession last year due to heightened inflation and a cost-of-living crisis, posing a challenge for Prime Minister Rishi Sunak ahead of this year’s general election.

The Office for National Statistics (ONS) announced that the gross domestic product contracted by 0.3 percent in the fourth quarter of 2023, following a 0.1 percent decline in the preceding three months..

That places the economy in recession, which is defined as two successive quarters of falling GDP.

The ONS noted that all main sectors shrank in the fourth quarter – with manufacturing, construction and wholesale being the biggest drags on growth – but added the economy was broadly flat overall in 2023.

Sunak, whose governing Conservatives are trailing Keir Starmer’s main opposition Labour Party ahead of the election due this year, has pledged to grow the economy as one of his top five priorities.

News of the recession comes as voters go to the polls in two by-elections on Thursday, with the Conservatives fearful of losing one-time strongholds in Wellingborough, central England, and Kingswood in the southwest.

“The news that the UK slipped into technical recession in 2023, will be a blow for the prime minister on a day when he faces the prospect of losing two by-elections,” said Capital Economics analyst Ruth Gregory.

“But this recession is as mild as they come and timely indicators suggest it is already nearing an end.”

Finance minister Jeremy Hunt noted that stubborn inflation and high interest rates were behind the output fall – but insisted the economy was “turning a corner”.

“While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.

“But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low.

“Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”

Confirmation of the recession comes one day after separate official data showed that UK inflation held at 4.0 per cent in January from December, or double the Bank of England’s target rate.

The January reading was better than market expectations of an increase to 4.2 per cent, but inflation nevertheless remains elevated, extending a cost-of-living crisis for millions of people in Britain.

Hunt added that bringing down elevated inflation remained the government’s “top” goal.
“High inflation is the single biggest barrier to growth which is why halving it has been our top priority,” he said.

But Labour slammed the government’s stewardship of the economy, adding that Sunak’s vow to deliver growth was in “tatters”.

“The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off,” said Labour finance spokeswoman Rachel Reeves.

“This is Rishi Sunak’s recession and the news will be deeply worrying for families and businesses across Britain.”

The BoE’s main interest rate sits at a 16-year high of 5.25 per cent, as it seeks to bring inflation back to its 2.0 per cent target.

However, rising interest rates also ramp up loan costs for individuals and businesses, further worsening the nation’s cost-of-living crunch.

Yet annual UK inflation has tumbled since striking a 41-year peak of 11.1 per cent in October 2022.

Global inflation soared as the invasion of Ukraine by major oil and gas producer Russia two years ago sent energy prices rocketing.

In response, the world’s major central banks helped to cool inflation by hiking borrowing costs.

According to BBC, the UK is considered in recession if GDP falls for two successive three-month periods – or quarters.

The figures will be a blow to Prime Minister Rishi Sunak. Growing the economy was one of five pledges he made in January 2023.

In 2020, the UK economy entered recession and contracted by a record 20.4 per cent in the second quarter with the country in lockdown over the coronavirus pandemic, official data had shown.

“It is clear that the UK is in the largest recession on record,” the Office for National Statistics said then.

Meanwhile, in December 2023, Britain’s economy unexpectedly shrank in the third quarter, official data showed, raising fears of a potential recession before an election due next year (2024).

Gross domestic product contracted 0.1 per cent between July and September, down from a prior estimate of zero growth, the Office for National Statistics said in a statement.