UK economy fell into recession at the end of 2023

  • By Dearbail Jordan & Faisal Islam
  • Business reporter and economics editor, BBC News

Image supply, Getty Images

The UK fell into recession throughout the ultimate three months of final yr, official figures present, after the economy shrank by greater than anticipated.

Gross home product – a key measure of financial exercise – dropped by 0.3%.

It follows a fall between July and September. The UK is taken into account to be in recession if GDP falls for 2 successive three-month intervals.

It raises questions over whether or not Rishi Sunak has met his pledge to develop the economy.

For the entire of 2023, the economy grew by 0.1%.

Nevertheless, excluding the Covid years, that annual progress determine is the weakest since 2009 when the UK and main economies had been reeling from the world monetary disaster.

Shadow chancellor Rachel Reeves mentioned the knowledge confirmed that Mr Sunak’s pledge to develop the economy was “in tatters”.

Meanwhile, Chancellor Jeremy Hunt is lower than three weeks away from unveiling his newest Budget.

The authorities can use rising GDP as proof that it’s doing a great job of managing the economy. Likewise, if GDP falls, opposition politicians say the authorities is operating it badly.

If GDP goes up steadily, individuals pay extra in tax as a result of they’re incomes and spending extra. This means extra money for the authorities that it may possibly select to spend on public providers, reminiscent of colleges, police and hospitals.

Governments additionally prefer to control how a lot they’re borrowing in relation to the dimension of the economy.

Treasury sources have confirmed to BBC News that the chancellor is trying at a bigger pencilled-in squeeze on public spending as a strategy to ship tax cuts in the Budget on 6 March.

Forecasts for the public funds have materially deteriorated in latest weeks as curiosity prices on UK authorities borrowing has elevated. Final choices haven’t been made.

Commenting on whether or not or not Mr Sunak had fulfilled his pledge to develop the economy, Mr Hunt advised the BBC: “When the prime minister made his dedication he was very clear, tackling inflation needed to come first.

“The massive image is that truly since then the economy has been extra resilient, unemployment has stayed low, actual wages have been rising now for six months. And if we follow our weapons now, we are able to see mild at the end of the tunnel.”

But Mr Reeves mentioned: “This is Rishi Sunak’s recession and the information will probably be deeply worrying for households and enterprise throughout Britain.”

Economist Samuel Tombs from Pantheon Macroeconomics mentioned it was “overly dramatic” to say {that a} fall in GDP for the second half of 2023 was a recession provided that employment continued to rise and wages rose.

However, Lord Rose, chairman of Asda, the grocery store group, advised BBC Radio 4’s Today programme: “It seems like a duck, it quacks like a duck, it walks like a duck, it’s a duck – it’s a recession.

“It doesn’t matter if it is a technical recession or not. There is no surprise here and I take no pleasure in saying there is no surprise that we’re in it. We’ve got a low growth economy or a no growth economy.”

Figures from the Office for National Statistics (ONS) confirmed that in the ultimate three months of final yr, there was a slowdown in all the most important sectors it measures to find out the well being of the economy, together with building and manufacturing.

The determine for the ultimate three months of final yr was worse than a 0.1% fall broadly forecast by monetary markets and economists.

GDP for the third quarter, between July and September fell by 0.1%.

Mr Hunt mentioned: “While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.”

Recent figures confirmed that inflation – which measures the tempo of worth rises – remained at 4% in January. That is twice the Bank’s 2% goal.

The Bank of England had been lifting rates of interest to place the brakes on inflation however has stored them at 5.25% since August final yr.

Ruth Gregory, deputy chief UK economist at Capital Economics, mentioned the newest financial figures “might nudge the Bank of England a little closer to cutting interest rates”.

“But we doubt the Bank will be too worried about what is likely to be a mild and short recession,” she added.

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