Due to consumer spending reductions brought on by skyrocketing interest rates and growing living expenses, the UK economy has entered a recession.
The downturn in all major economic sectors and the collapse of retail sales in the run-up to Christmas caused the gross domestic product (GDP) to fall by a bigger than projected 0.3% in the three months leading up to December, according to the Office for National Statistics (ONS).
It came after a 0.1% decline in the third quarter, indicating that the country’s production had decreased for the second straight quarter, which is what is technically known as a recession.
The formal admission of a recession, according to the UK Guardian, is a blow to the government with less than a year to the election and will make Rishi Sunak look foolish, since the prime minister declared expanding the economy to be one of the government’s top five goals at the beginning of the year.
The shadow chancellor, Rachel Reeves, declared: “Rishi Sunak’s pledge to expand the economy is now in ruins. After more than 14 years of economic deterioration under the Conservatives, which has left Britain worse off, the prime minister can no longer legitimately claim that his strategy is succeeding or that he has turned the corner.
“This is Rishi Sunak’s recession, and the news will cause great concern for British businesses and families.”
With the exception of the economic collapse in 2020 during the Covid epidemic, the ONS reported that growth for the entire year of 2023 was anticipated to be 0.1%, the lowest since 2009 during the financial crisis.
According to Liz McKeown, the ONS’s head of economic statistics, “our initial estimate shows the UK economy contracted in the fourth quarter of 2023.” The economy has declined during the past two quarters, but overall in 2023 it has been essentially flat.
“All of the major sectors experienced quarterly declines, with the largest growth drags being manufacturing, construction, and wholesale, partially offset by increases in lodging and machinery and car rentals.”
Before the year ended, most economists had predicted a little recession as consumers faced pressure from increased borrowing costs and growing prices for daily necessities, which forced them to make savings elsewhere.
Heavy rains and widespread strikes throughout the economy also reduced business.
However, more recent economic snapshots have showed a rise in consumer confidence since the beginning of the year, supported by the expectation that the Bank of England may decrease interest rates when inflationary pressures lessen.
This week, Bank governor Andrew Bailey played down the importance of the quarterly GDP numbers, pointing out that there were indications of a “upturn” in the economy that would become more evident in the coming months.
“High inflation has been our top priority because it is the single biggest barrier to growth,” said Jeremy Hunt, the chancellor. Low growth is expected given that interest rates are high, which allows the Bank of England to control inflation.
“But there are signs the British economy is turning a corner. Forecasters believe that GDP will accelerate over the next several years, salaries are increasing faster than prices, mortgage rates are down and unemployment is low. Even if many people are still struggling financially, we must keep to the plan and reduce taxes on labor and industry in order to strengthen the economy.
The most recent ONS snapshot, however, showed weakness in several areas of the economy at the end of the previous year, including a decline in GDP in the midst of a difficult Christmas shopping season for shops, junior doctor strikes, and significant rains.
In light of the strain on household spending caused by the crisis in the cost of living, the ONS reported that production in the UK’s leading services sector had decreased for three quarters running, culminating in a 0.2% decline in the final quarter of 2023.
“Though the shallowness of this recession provides comfort, these figures also confirm that our economy remained locked in a cycle of persistent stagnation throughout 2023 as a myriad of headwinds, including high inflation, weighed heavily on activity,” stated Suren Thiru, the economics director of the Institute of Chartered Accountants in England and Wales.