Recession hits UK as GDP falls in the final quarter of 2023
In a turn of events that shakes Rishi Sunak’s election campaign, the UK economy slipped into a recession in 2023. The Office for National Statistics revealed a 0.3% GDP drop in the last quarter, following a 0.1% decline previously. This scenario paints a bleak picture for Chancellor Jeremy Hunt, who faces the tough choice of cutting public spending to afford tax cuts.
Labour’s response was swift, declaring Sunak’s economic promises shattered. Shadow Chancellor Rachel Reeves criticised the prime minister’s failing strategies after over 14 years of Conservative rule, leaving Britain in a worse state.
Yet, Hunt remains optimistic, claiming signs of economic recovery. He cites forecasters’ predictions of growth, rising wages, falling mortgage rates, and low unemployment as evidence of improvement.
Embed from Getty ImagesHowever, when considering the UK’s population growth, the situation appears grimmer. GDP per capita fell by 0.7% throughout 2023, showing no growth since early 2022. This stagnation sparks debate among economists, with some suggesting “recession” might not fully capture the economy’s state.
The Bank of England’s governor, Andrew Bailey, urged caution in overemphasizing the recession’s depth, predicting a shallow impact. Markets anticipate interest rate cuts, with a significant chance of a reduction by mid-year.
Despite these challenges, the BoE remains slightly optimistic, adjusting its 2024 growth forecast to 0.25%. This follows UK inflation rates holding steady and strong pay growth, which could maintain price pressures.
As the Tory party faces potential by-election losses, all eyes are on the economy’s main sectors. Manufacturing, construction, and wholesale faced downturns, only slightly offset by some industries. With household spending and government consumption down, investment is the quarter’s slight silver lining.
This economic downturn represents a crucial test for Sunak’s administration, as it navigates through recessionary waters amidst electoral pressures and public scrutiny.
