The UK entered recession in the second half of last year as high interest rates and inflation put pressure on household and business finances, making it difficult for businesses to cope in an election year. Conservatives in power.
Gross domestic product (GDP) fell by 0.3% in the fourth quarter of 2023, a stronger decline than economists expected on average, after falling by 0.1% in the third, according to the Office National Statistics (ONS) Thursday.
Two quarters of economic contraction in a row are generally considered by economists to be the definition of a so-called “technical” recession.
Over the entire year 2023, the United Kingdom shows slight growth of 0.1% year-on-year, after 4.3% in 2022, specifies the ONS.
The recession was notably triggered by the poor performance of retailers in December, at the height of the Christmas holiday season, and traditionally the high time of the year for this sector, according to the ONS.
This is the first time that the British economy has entered into recession since 2020, when confinements to combat the coronavirus pandemic wiped out economic activity for months.
The ONS notes that the British economy is recording its worst performance “since the financial crisis of 2009, except for 2020”.
“Inflation is the biggest obstacle to growth, which is why halving it has been our priority,” commented Finance Minister Jeremy Hunt.
Inflation in the United Kingdom stands at 4%, still double the Bank of England (BoE) target, but has fallen sharply compared to its peak of 11% reached in October 2022.
“With interest rates high — currently at 5.25% — for the Bank of England to bring down inflation, weak growth is no surprise,” Mr Hunt continues. »
Tattered promises
“But there are signs that the British economy has turned a corner and forecasters anticipate growth for the coming years,” he assures.
“The announcement that the UK has entered a technical recession in 2023 will be a blow to Prime Minister “Conservative Rishi Sunak” on a day when he risks losing two local elections,” notes economist Ruth Gregory, of Capital Economics in a note. “But this recession is as moderate as possible and leading indicators suggest that it is already close to its end,” she believes.
For Samuel Tombs, economist at Pantheon Macro, it is “exaggerated” to speak of a recession “given that employment has continued to increase, real wages have rebounded and measures of business and consumer confidence have returned to consistent levels with growth in activity at the end of the year » 2023.
On the other hand, the main economic manager of the opposition Labor party, Rachel Reeves, was scathing: “Rishi Sunak’s promise to grow the economy is in tatters,” she declared on Thursday.
Labor currently has a clear lead over the Conservatives, in power for around 14 years, in the polls for the next legislative elections, which should be held this year.
The pound reacted only moderately to the announcement of the United Kingdom’s entry into recession, which had been anticipated by many currency traders.
Around 10 a.m. GMT, it lost 0.11% to 1.2553 dollars and also fell against the euro, with some investors judging that the statistics on economic contraction support the prospect of a more rapid reduction in key rates from the BoE. .
“The terrible performance of the British economy puts the government under pressure to consider significant tax cuts for the spring budget,” said Raj Badiani, economist at S&P Global, who expects the recession to “ends in the second trimester”.
The main British employers’ organization, the CBI, for its part called for “actions to encourage participation” in the labor market as well as investment.
The ONS this week reported a record number of people with long-term illness who cannot work, weighing on the country’s employment rate, which is still below its pre-pandemic level.
According to Sky News, Jeremy Hunt wants to reduce public spending in order to find room to maneuver to announce tax cuts during the budget presentation on March 6… and improve the appeal of his party to voters.