UK economy in 2023: recession, hopes for the future
In the second half of last year, according to our website, the UK fell into recession as high interest rates and inflation put pressure on the finances of households and businesses, making it difficult for the ruling Conservatives to win an election.
GDP fell 0,3 % in the fourth quarter of 2023, a sharper decline than average economists had expected, after falling 0,1 % in the third quarter, the Office for National Statistics (ONS) said.
Two consecutive quarters of economic contraction are usually considered by economists as the definition of a so-called "technical" recession.
Through 2023, the U.K. will see marginal growth of 0,1 % at an annualized rate after 4,3 % in 2022, the ONS said.
The ONS said the recession was triggered in particular by a mediocre retail performance in December, at the height of the Christmas season, which is traditionally the high point of the year for the sector.
This is the first recession in the UK economy since 2020, when restrictions to combat the coronavirus pandemic wiped out economic activity for several months.
The ONS notes that this is the worst performance of the British economy "since the financial crisis of 2009, with the exception of 2020".
"Inflation is the biggest obstacle to growth, so halving it is our priority," commented Treasury Secretary Jeremy Hunt.
UK inflation is 4 %, double the Bank of England's (BoE) target, but it has fallen sharply since peaking at 11 % in October 2022.
"Given that interest rates are high - currently at 5,25 % - for the Bank of England to keep inflation in check, weak growth is not a surprise," Hunt continued.
'This recession is as moderate as it can be and leading indicators suggest it is nearing an end.
According to Samuel Tombs, economist at Pantheon Macro, it is "exaggerated" to talk of a recession "given that employment continues to grow, real wages have recovered and measures of business and consumer confidence have returned to levels consistent with activity picking up at the end of 2023."
The Pound Sterling reacted only moderately to the news that the UK is entering a recession, which many currency traders had expected.
The pound fell 0,11 % to $1,2553 and also fell against the euro as some investors felt that statistics on the shrinking economy suggested the Bank of England's key interest rate cut was imminent.
"The terrible performance of the British economy is putting pressure on the government to consider a major tax cut in the spring budget," said Raj Badiani, an economist at S&P Global, who expects the recession to "end in the second quarter."
Britain's largest employers' organization, the CBI, called for "action to encourage participation" in the labor market and investment.
This week, the ONS reported record numbers of people on long-term sick leave and out of work, putting pressure on the country's employment rate, which is still below pre-pandemic levels.
According to Sky News, Jeremy Hunt wants to cut government spending to find room to maneuver to announce tax cuts at the March 6 budget presentation and boost his party's appeal to voters.
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