The recession has become an economic reality in the United Kingdom, as evidenced by official data published by the Office for National Statistics (ONS) on Thursday, February 15.
In the current political circumstances, the recession is an extremely negative factor for British Prime Minister Rishi Sunak. He promised to ensure economic growth, but the reality faced by the people of the United Kingdom turned out to be different. For Rishi Sunak, the recession is also a negative factor in the context of the fact that a general election will be held in the UK in a few months.
In the fourth quarter of 2023, the gross domestic product of the United Kingdom showed a decrease of 0.3%. In the period from July to September last year, the corresponding indicator was down by 0.1%. This information was published by the ONS. Traditionally, a recession is noted against the background of a drop in GDP for two consecutive quarters.
Liz McKeown, Director of Economic Statistics at the ONS, says that all major segments of the United Kingdom’s economic system have demonstrated a negative dynamic in the last three months of 2023. According to her, the sources of the greatest negative impact on the system’s overall performance were sectors such as manufacturing, construction, and wholesale trade. Liz McKeown noted that the combined strength of the economic slowdown factors was partially offset by a more positive state of affairs in the hotel business and the sphere of rental vehicles and machinery.
The ONS estimates that the UK’s GDP increased by 0.1% over the past year. This growth dynamic of the corresponding indicator is the weakest since 2009 when the mentioned country’s economic system made efforts to overcome the challenges associated with the global crisis. Also, in this case, the result of 2020 should be conditionally taken into account or not at all, when, against the background of the coronavirus pandemic, many production processes significantly slowed or stopped and activity in the business environment fell, except for certain sectors for which the so-called remote mode of existence became a source of benefit.
The weak manufacturing growth in the United Kingdom last year contrasts with the positive dynamic in the corresponding area in 2022. The year before last, this figure increased by 4.3%.
Some analysts tend to use the term stagnation when describing the state of the United Kingdom’s economic system in 2023. Liz McKeown says that in general, the economy remained at the same level last year.
For Rishi Sunak, as mentioned above, the recession is a serious problem and the ONS data is likely to be a cause of disappointment for him. Public opinion polls in the run-up to the elections show a higher level of sympathy among residents of the United Kingdom for the opposition Labour Party, rather than the ruling Conservative Party, whose head is the Prime Minister. Three months ago, Mr. Sunak could have declared victory against the background of a slowdown in inflation, but this positive result in no way cancels the fact of the lack of economic growth, which is an element of objective reality that cannot be overcome by formulations and promises of a more successful future.
Paul Dales, chief economist at Capital Economics in the UK, wrote in a note last week that in the United Kingdom, none of the parties to local political space fully recognized the current configuration of the country’s financial condition. The expert said it was not yet clear how politicians would make the numbers add up when they were faced with the implausible cuts in government spending that are already scheduled.
At the same time, a moderate recession does not negate the fact that, in general, the economic system of the United Kingdom has not plunged into the abyss, where there is only darkness and weak hopes for the future, located on the border of rational and irrational perception of reality. The current state of affairs in a positive sense is significantly different from the situation that was considered by many experts as the most likely scenario a year ago. There was an opinion among analysts that the UK economy would face a sharper downturn than the one that was eventually recorded.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, argues that calling a recession a decline in economic activity in the United Kingdom in the second half of 2023 is too dramatic, noting that real wages have recovered and employment continues to rise. The expert also says that in the mentioned country, business and consumer confidence indicators have returned to levels corresponding to the growth in activity by the end of this year. Samuel Tombs outlined this point of view on the state of the economic system of the United Kingdom in a note published on Thursday.
Ana Andrade, an expert at Bloomberg Economics, says that the UK’s prospects for 2024 are more positive compared to the situation observed last year.
Annual inflation in the United Kingdom was 4% in January, demonstrating stability. This result does not correspond to the forecasts of experts who expected a slight increase in the corresponding indicator. The Bank of England’s inflation target is at 2%. At the same time, the January result is significantly better than the so-called inflation peak, which was recorded in October 2022 and amounted to 11.1%.
Overall, the economic data in the United Kingdom is mixed. Perhaps a slowdown in inflation and the reduction in interest rates expected by many shortly will be able to form the basis for economic growth in 2024.
Food inflation in the United Kingdom fell to 7% in January from a peak of 19.2% in March last year. The cost of food has decreased for the first time in more than two years.
Salaries in the United Kingdom have been ahead of prices for seven months in a row. ONS data shows that the average wage excluding bonuses increased by 6.2% year-on-year in the three months to December 2023.
Hannah Slaughter, senior economist at the Resolution Foundation think tank, said this week that nominal pay growth is slowing. At the same time, the expert noted that inflation is falling faster, creating conditions for a long-awaited, albeit short-term, increase in real wages.
The number of vacancies in the UK labor market fell to 932,000 in the three months to January. This is the lowest figure since mid-2021. The main reason for the shortage of workers in the United Kingdom is ill health. Currently, in this country, the number of those who do not work due to a long-term sick is a record 2.8 million people. Hannah Slaughter says that the mentioned circumstance constrains the economy, puts pressure on public finances, and limits opportunities for too many people.
Data from the Resolution Foundation suggests that health problems are the reason that the United Kingdom remains the only economy in the Group of Seven that has not returned to the employment levels that existed before the coronavirus pandemic.
