UK, UK Economy Fells Into Recession After People Cuts Spending…Click To Find More

UK Economy

UK Economy Slipped Into Recession In 2023

GDP fell 0.3% in final quarter of last year, 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.

According to data published by the Office for National Statistics, Gross Domestic Product fell by 0.3% in the last three months of 2023 following a 0.1 per cent decline in the third quarter.

UK Economy
Source : Financial Times

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.”

Hunt insisted that there were signs that the British economy was “turning a corner”. He also added “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,”

UK GDP contracted in 2023, but other measures of activity remained stronger

Source : Financial Times

The figure looks worse if you take into account the rise into population of UK.  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”.

UK Markets are in three quarter-point interest 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% 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 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.

The UK economy underperformed others

Source : Financial Times

There was a fall in the volume of net trade, household spending and government consumption in the quarter, but there was 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”.

UK trend growth has failed to recover from the financial crisis and from the Covid pandemic

Real GDP Based

Source : Financial Times

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.

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