UK economy slipped into recession in 2023
GDP fell 0.3% in final quarter of last year, dealing
blow to Rishi Sunak’s election campaign
The Office for National Statistics said all main
sectors fell in the final quarter of 2023, with manufacturing, construction and
wholesale being the biggest drags on growth
Valentina
Romei and George Parker in London YESTERDAY
https://www.ft.com/content/b48cfce5-6a0b-4811-9e17-847da43d9a33
The UK
slipped into a technical recession at the end of last year, dealing a serious
blow to Rishi Sunak’s pledge to “grow the economy” as the cost of living crisis
continued to hit household spending and business activity.
Gross
domestic product fell 0.3 per cent in the final three months of 2023, following
a 0.1 per cent decline in the third quarter, according to data published by the
Office for National Statistics.
The figures
create a challenging backdrop for Jeremy Hunt as he considers slashing billions
of pounds from public spending plans in next month’s Budget to fund
pre-election tax cuts. Having raised Tory hopes of tax cuts in the past few
weeks, the chancellor is now trying to suppress them.
Labour
claimed the prime minister’s pledges on the economy were “now in tatters”.
Shadow chancellor Rachel Reeves said: “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.”
But Hunt
insisted there were signs the British economy was “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,” he
added.
The figures
look worse if you take into account the increase in the UK’s population. Output
per head contracted 0.7 per cent in 2023, falling in every quarter last year
and failing to grow since the start of 2022.
Two
consecutive quarters of contracting GDP is defined as a technical recession,
though many economists believe stagnation is a better description without a
more sustained downturn.
James
Smith, Resolution Foundation research director, said: “Britain has fallen into
recession and a far deeper living standards downturn.”
But this
week Andrew Bailey, BoE governor, warned against putting “too much weight” on
the economy slipping into a technical recession as it was expected to be “very
shallow”.
Markets are
now pricing in around three quarter-point interest rate cuts by the Bank of
England this year, with a 65 per cent probability of the first cut being
delivered by June.
Interest
rate-sensitive 2-year gilt yields were roughly flat at 4.56 per cent, while the
FTSE 100 index of blue-chip stocks rose 0.4 per cent. Sterling rose 0.1 per
cent to $1.258.
Economists
polled by Reuters had forecast the economy would contract by 0.1 per cent in
the final quarter as high borrowing costs, inflation and strikes hit activity.
In 2023,
the economy largely stagnated as it grew only 0.1 per cent. This was well below
the 2.5 per cent expansion registered in the US, and weaker than the 0.5 per
cent growth of the eurozone.
The data
comes as the Tory party risks losing two seats in by-elections on Thursday in
Wellingborough in Northamptonshire and in Kingswood near Bristol.
The ONS
said all the main sectors of the economy fell in the final quarter, with
manufacturing, construction and wholesale being the biggest drags on growth,
partially offset by increases in hotels and rentals of vehicles and machinery.
There was a
fall in the volume of net trade, household spending and government consumption
in the quarter, only partially offset by an increase in investment.
The ONS
said output in December was down 0.1 per cent from the previous month, softer
than the 0.2 per cent contraction forecast by analysts.
Sanjay
Raja, chief UK economist at Deutsche Bank, said the contraction in the fourth
quarter represented a “meaningful miss on GDP” for the BoE’s Monetary Policy
Committee.
“There’s
clearly more spare capacity in the economy than assumed in their recent
projections,” he said, adding that the data would “no doubt become
uncomfortable especially with the bank rate at highly restrictive levels”.
The BoE
this month upgraded its forecast for 2024 growth, which it now says will be
0.25 per cent — up from its previous prediction of zero growth. It forecasts
0.75 per cent growth for 2025.
The GDP
figures follow UK inflation data published on Wednesday that showed price
growth at 4 per cent in January, the same rate as December and lower than
forecast by the BoE.
However, on
Tuesday official data also revealed that pay growth was still strong, raising
concerns about the persistence of underlying price pressures.
Additional reporting by Mary McDougall
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