When an economy experiences two consecutive quarters of negative GDP-measured economic growth, it is generally accepted that the economy has entered a technical recession.
The economy shrank more than expected in the final three months of 2023. Due to the ongoing pressures from the cost of living crisis on consumer spending and productivity, the United Kingdom entered a recession at the end of the previous year.
The gross domestic product (GDP) for the fourth quarter of 2023 was reported at -0.3%, which was lower than the -0.1% recorded in the previous quarter. Additionally, this was less than the -0.1% analyst projection.
In Q4 2023, the GDP growth rate year over year was -0.2%, which was lower than the 0.2% growth rate in Q3 and below the 0.1% market expectation. Since 2021, this was the first decline. In 2023, the GDP increased by a meager 0.1%.
The statistics undermine Prime Minister Rishi Sunak’s attempts to provide a more optimistic picture of the economy in what is anticipated to be an election year, even if some analysts believe the recession will only last temporarily.
Business executives were informed by Sunak on Tuesday that the UK economy had “turned a corner” and was expected to increase in 2024.
Mild recession
“This recession is as mild as they come,” stated Ruth Gregory, deputy chief UK economist at Capital Economics, who also noted that the data “is more politically significant than it is economically.”
But Asda’s chairman, Lord Rose, said on BBC Radio 4’s Today programme that although the economy “looks like a duck, quacks like a duck, walks like a duck, it is a duck – it is a recession.”
“There is no surprise that we are in it, and I do not take delight in saying that there is no surprise here. Our economy is either growing slowly or not at all.”
According to Bennett’s construction director, Mark Keyes, the previous year was “turbulent”.
“We were still feeling the ripple effects of inflation running through the industry, and then that was, in a way, compounded with rising interest rates,” he said.
In an effort to curb inflation, the Bank of England raised interest rates, but since August of last year, it has maintained them at 5.25%.
Mr Hunt stated: “While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.”
Although Mr. Keyes stated there were signs of hope in the construction business, he nonetheless stated he thought the economy was “turning a corner”.
Also read this: Understanding Accumulated Depreciation: A Complete Guide for Beginners 2024
What is causing the GDP to decline?
Similar to the previous quarter, the decline in services output of -0.2% was the primary cause of the quarter-over-quarter outcomes. The output of industrial production fell by -1%, quicker than the previous quarter’s 0.1% decline. Moreover, construction output decreased from 0.1% to -1.3%.
Exports fell from -0.8% to -2.9%, but household expenditure fell more slowly, falling to -0.1% from -0.9%. A slower rate of decline was also seen in imports, which decreased to -0.8% in Q4 2023 from -1.8% in the previous quarter.
Nonetheless, gross capital formation—which mostly consists of structures and buildings—rose 1.4% in the last quarter of 2023 from -1.4% in the prior quarter.
What does the UK’s recession mean?
The UK economy has only recently entered a recession, but this hasn’t stopped discussion about when the Bank of England would decide to lower interest rates—possibly before this summer. Others, however, think that in order to firmly control long-term inflation, the central bank might be prepared to forgo short-term growth.
“The pound sold off against its peers, albeit very modestly,” stated Matthew Ryan, head of market strategy at financial services company Ebury. “Since early this year, sterling has remained one of the better performing major currencies in the world.”
Investors are clearly not persuaded that a slight recession will be sufficient to persuade the MPC to cut interest rates at this time, since policymakers are much more concerned with lowering UK inflation than with supporting short-term growth. As a result, we still expect the first rate cut from the Bank of England to occur before the bank’s June meeting.
Alfie Stirling, Chief Economist of the Joseph Rowntree Foundation, expressed alarm over the report.
“However, the millions of people already experiencing unjustifiable hardship won’t be thinking about it.” As already exorbitant food prices continue to rise, refrigerators are either empty or turned off,” he remarked.
Family finances are being severely impacted by high interest rates, causing loan and mortgage installments to be missed. And as the labor market keeps getting worse, jobs are becoming more and more vulnerable,” he continued.
Stirling also emphasized that the Budget is only a few weeks away and stated that policymakers’ first focus should be addressing the nation’s economic security dilemma, which affects every family in the country.
“The first steps in achieving this include updating Universal Credit to account for the true cost of necessities and revitalizing important services related to housing, care, and employment assistance.
“There’s no magic bullet. A thriving economy may depend on business investment, but social security and public services give it its pulse, the speaker continued.
