According to Reeves, the GDP decreased by 0.3% in October-December, which was worse than expected.
Rishi Sunak’s pledge to boost the economy has now crumbled.
The prime minister can no longer convincingly state that his strategy is successful or that he has reversed the course of economic decline that has plagued Britain for over fourteen years under the Conservative party, resulting in a worsening situation. This current recession is now attributed to Rishi Sunak and the implications are concerning for families and businesses throughout Britain.
The time has come for a shift. We require an immediate election to allow the citizens of Britain to choose a reformed Labour Party, with a comprehensive strategy for creating more employment opportunities, increasing investments, and lowering expenses. Only Labour possesses the means to restore Britain’s future.
As previously indicated, the GDP report for today reveals that the UK experienced a period of economic stagnation in the second quarter of 2023, followed by contraction in both Q3 and Q4.
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The Office for National Statistics reported that the country’s gross domestic product (GDP) decreased by 0.3% in the last three months of the year, exceeding expectations. This was due to a decline in all major sectors of the economy and a significant drop in retail sales leading up to the holiday season.
The third quarter saw a decrease of 0.1%, solidifying a second quarter in a row of declining national production. This meets the technical criteria for a recession.
The prime minister is expected to face embarrassment before the upcoming general election as the official announcement of a recession contradicts his goal of prioritizing economic growth as one of his top five government initiatives.
Shadow chancellor Rachel Reeves stated that Sunak’s pledge has been rendered meaningless due to the prolonged period of economic stagnation during the Conservative’s time in power.
She said:
This recession belongs to Rishi Sunak and the news will be concerning for families and businesses all across Britain.
According to the ONS, the overall growth in 2023 was projected to be 0.1%, marking the lowest rate since 2009 when the global financial crisis occurred. This does not include the economic downturn in 2020 caused by the Covid pandemic.
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Here are the remaining updates on today’s business happenings.
Critics mocked the idea that there were signs of economic improvement, but the following year did prove to be a period of recovery.
According to Mrs. Lamont, “Green shoots do not appear in the fall.”
According to the IMF, the UK’s economy is projected to experience a growth of just 0.6% in 2024, significantly lower than the average growth rate of 1.5% for advanced economies.
In 2024, the Bank of England might provide a slight lift to the economy by lowering interest rates. However, it should be noted that the Bank’s primary goal is to manage inflation and not to encourage economic growth.
The Government lacks a consistent strategy for expanding the economy, but they may implement tax cuts before the general election to gain favor with voters.
In the United States, there has been a larger than anticipated decline in spending at retail stores, bars, and restaurants.
Retail and food services sales in the US decreased by 0.8% compared to the previous month in January, which was a more significant drop than the predicted decline of 0.2% by economists.
This could indicate a decrease in consumer demand in the largest global economy, due to elevated interest rates.
The response of the stock market to the UK’s recession has been minimal, as the pound has only slightly decreased and shares have slightly increased.
According to Janet Mui, the head of market analysis at wealth management firm RBC Brewin Dolphin, this indicates that investors are not surprised or worried about the current GDP numbers.
Mui says:
While the optics may not be ideal, given the current state of the labor market where the unemployment rate is at 3.8%, it can be said that the UK economy is not experiencing a significant decline.
We have always felt that the UK is more susceptible to economic vulnerability due to its interest rate sensitivity. 2024 is unlikely to be a smooth ride for the UK economy as more homeowners are remortgaging into significantly higher interest rates. That said, there are also reasons for optimism due to the prospects of rate cuts later in the year as disinflation continues.
Employees now have increased purchasing power as wages are exceeding inflation. Despite negative forecasts, home prices are increasing on a monthly basis.
Megan Greene, a policymaker at the Bank of England, has stated her desire to see more proof of inflation decreasing before making a decision to decrease interest rates.
One of the six BoE policymakers, Greene, voted to maintain the current interest rates this month. This is a change from their previous vote in favor of increasing borrowing costs.
During a speech at Fitch, Greene forecasts that monetary policy will continue to be restrictive in order to lower inflation to the 2% target, which was still at 4% in January.
Greene says:
Due to recent changes in demand and inflation, it is evident that the monetary policy in the UK is restrictive. However, considering the ongoing wage and services price pressures in the UK, which are higher compared to other countries, I believe that the policy will need to continue being restrictive for a period of time in order to achieve sustainable inflation levels that align with the target.
I am encouraged by recent indications that the level of persistence is beginning to decrease. Based on this, I believe that the current policy is restrictive enough to bring inflation back to its targeted level in the medium term. However, I would require additional proof that inflation persistence is not as deeply rooted as previously thought before I would consider voting to relax policy.
According to Greene, the UK has experienced a “double whammy” of a significant and enduring terms of trade shock, similar to that of the EU, and a tight labor market comparable to that of the US.
This indicates that the UK is more at risk for “inflation persistence.”
Additionally, she mentions that the impacts of Brexit and the pandemic have resulted in a much weaker supply in the UK compared to the US over the past few years.
The UK economy is expected to grow in the current quarter according to NIESR, the institute for economic forecasting.
It is predicted that the GDP will increase by 0.2% in the first quarter of January-March.
NIESR economist Paula Bejarano Carbo stated:
The latest ONS report shows that the fourth quarter of 2023 saw a 0.3% decrease in GDP, making it the second consecutive quarter of decline. According to the usual measure, this indicates that the UK economy experienced a mild recession in the latter half of 2023.
Unfortunately, this measurement is subjective and does not provide significant insight. A more accurate depiction of the UK economy would be that GDP decreased from the first quarter of 2022 to the final quarter of 2023. Additionally, GDP per capita is still below pre-Covid levels.
The bigger concern of stagnant growth and its negative effects on future quality of life should be the focus of current news, rather than minor details.
Source: theguardian.com
