The United Kingdom’s economy experienced a recession in the final months of last year due to households reducing their spending in response to the high cost of living. This is a significant setback to Rishi Sunak’s pledge to boost economic growth.
According to the Office for National Statistics, the gross domestic product (GDP) dropped by 0.3% in the last three months of December, which was more significant than initially anticipated. This decline was seen across all major sectors of the economy and was further exacerbated by a sharp decrease in retail sales leading up to the holiday season.
This marks a decrease of 0.1% in the third quarter and solidifies a second quarter in a row of declining national production, which meets the technical criteria for a recession.
The prime minister’s reputation will be damaged if a recession is officially confirmed before the upcoming general election, as he has placed a strong emphasis on expanding the economy as one of his top priorities for the government.
The opposition’s shadow chancellor, Rachel Reeves, stated that Sunak’s pledge has been rendered ineffective due to the Conservatives’ prolonged economic decline. She expressed concern for families and businesses in Britain, labeling it as “Rishi Sunak’s recession”.
The Office for National Statistics reported that the overall growth in 2023 was projected to be 0.1%, making it the poorest performing year since 2009, when the financial crisis occurred. This does not take into account the economic downturn in 2020 caused by the Covid pandemic.
According to official data, there has been a continuous decline in economic growth per capita for seven quarters, marking the worst results since 1955. This is due to increasing prices and higher interest rates causing financial strain for households and revealing a significant economic downturn.
Liz McKeown, the director of economic statistics at the ONS, stated that the UK economy experienced a decline in the final quarter of 2023. Although this marks the second consecutive quarter of contraction, the economy remained relatively stagnant throughout the entirety of 2023.
During the quarter, there was a decline in all major industries including manufacturing, construction, and wholesale. However, there were some gains in the hotel and vehicle/machinery rental sectors that helped offset some of the negative impact on overall growth.
Many economists predicted a slight economic downturn in late 2019 due to households facing financial strain from higher interest rates and increasing costs of necessary items, resulting in budget cuts in other areas. The economy was further hindered by widespread strikes and excessive rainfall.
Recent economic data has revealed an improvement in consumer sentiment since the beginning of the year. This is due to expectations of interest rate reductions by the Bank of England, as inflationary pressures ease.
The governor of the Bank, Andrew Bailey, recently minimized the importance of the quarterly GDP numbers, indicating that there are indications of a potential improvement in the economy that will be more evident in the upcoming months.
The main hindrance to economic growth is high inflation, according to the chancellor Jeremy Hunt. Halving inflation has been our primary goal. However, the high interest rates required by the Bank of England to lower inflation have resulted in low growth, which was expected.
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“The British economy appears to be making a positive shift. Experts predict that there will be a strengthening of growth in the coming years, with wages increasing at a faster rate than prices. Additionally, mortgage rates have decreased and unemployment rates remain low. While many families still face challenges, it is important to stay committed to our strategy of reducing taxes for employment and businesses in order to establish a more robust economy.”
It is highly anticipated that the Bank will initiate a decrease in interest rates as soon as this summer due to mounting worry about the economy’s stability. This comes after 14 consecutive hikes in borrowing costs in response to significant inflation. Recent official data reveals that inflation has unexpectedly held steady at 4% in January, after dropping from over 10% a year ago.
The Organisation for Economic Co-operation and Development predicts that economic growth will exceed France and Germany with a 0.7% growth rate this year, but it will still fall behind the US and other advanced economies.
The ONS reported that the UK economy is currently 1% bigger than its pre-pandemic size, placing it ahead of Germany but trailing behind the other countries in the G7 group of developed nations.
The most recent update from the Office for National Statistics showed a decline in economic activity in many sectors at the end of the previous year, as retailers struggled during the holiday shopping season.
Looking back at the strain on family expenditures during the current struggles with the rising cost of living, the ONS reported a decline in the output of the UK’s primary services industry for three quarters in a row, with a decrease of 0.2% in the final three months of 2023.
According to Suren Thiru, the director of economics at the Institute of Chartered Accountants in England and Wales, the mildness of this economic downturn may be reassuring, but it also confirms that our economy was stuck in a pattern of ongoing stagnation in 2023 due to various challenges, such as high inflation, that significantly hindered economic activity.
Source: theguardian.com
