The UK enters recession ahead of national elections

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Closed shops on Hartlepool High Street in England on 01 February 2024.


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CNN

The United Kingdom has slipped into recession Official figures showed on Thursday, just months before the general election, derailing Prime Minister Rishi Sunak's pledge to achieve economic growth.

GDP fell by 0.3% in the last three months of 2023, after a 0.1% contraction in the July-September period, the Office for National Statistics said. He said. A recession is usually defined as two consecutive quarters of contraction.

“All major sectors declined during the quarter, with manufacturing, construction and wholesale trade the biggest impediments to growth, partly offset by increases in hotels and vehicle and machinery rentals,” Liz McKeown, director of economic statistics at the ONS, said in a statement.

The Office for National Statistics estimates that UK GDP will rise by a meager 0.1% in 2023. This is the worst performance Since 2009 when the economy was still reeling from the global financial crisis, if 2020, which was affected by the pandemic, is excluded. The weak increase in production last year follows 4.3% growth in 2022.

“Over the course of 2023 as a whole, the economy has been broadly stable,” McKeown said.

This news will come as a disappointment to Sunak, whose ruling Conservative Party is running in two rounds of local elections in England on Thursday. It could also expand the dominant leadership the opposition Labor Party already enjoys In the polls before National elections Expected this year.

“While the shallowness of this recession provides comfort, these figures also confirm that our economy has remained locked in a continuing cycle of recession throughout 2023,” said Suren Thero, director of economics at the Institute of Chartered Accountants in England and Wales.

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The data also provides an unwelcome backdrop for the government's annual budget announcement next month. British Finance Minister Jeremy Hunt He is widely expected to unveil moderate cuts to some taxes, despite the weak economy and significant hikes Government debt levels.

Hunt said on Thursday that the lower growth was expected due to higher interest rates, which the Bank of England raised to levels not seen in 26 years in order to… To address inflation.

Hunt added: “But there are signs that the UK economy is going through a difficult period. Although times are still difficult for many families, we must stick to the plan – cutting business and business taxes to build a stronger economy.” He added in a statement.

Despite the mild recession, the UK economy has performed much better than many economists feared a year ago, when many were expecting a considerably sharper contraction.

“It is very interesting to characterize the decline in economic activity in the second half of 2023 as a recession, given the continued rise in employment, the recovery in real wages and the return of measures of business and consumer confidence to levels consistent with rising activity by the end of the year,” said Samuel Tombs, chief UK economist at Pantheon of Macroeconomics:

slowing down Inflation and interest rate cuts expected later this year could boost economic activity, which has already begun to pick up in the dominant services sector.

The annual inflation rate in the United Kingdom remained unchanged In January, by 4%. This is still double the Bank of England's target of 2%, but well below the record 11.1% set in October 2022.

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The Office for National Statistics said on Wednesday that food inflation fell to 7% from a recent high of 19.2% in March 2023. Compared to the previous month, food prices recorded their first decline in more than two years.

Meanwhile, salaries are now rising faster than… Prices for seven consecutive months. Average wages excluding bonuses grew at an annual rate of 6.2% in the three months to December, according to the Office for National Statistics.

“We believe this is the end of the UK recession, and that growth will swing into positive territory but only slowly,” Nomura economists wrote in a note on Thursday.

The view that the recovery will be uninspiring supports the detached view Data From the Office for National Statistics on Thursday it shows that growth in productivity, measured by output per hour, stabilized last year.

This story has been updated with additional details.

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