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The promise made by Prime Minister Rishi Sunak to boost the economy has suffered a major setback, as recent data shows that Britain slipped into a recession in the final months of last year.
The ONS calculated that the GDP experienced a decrease of 0.3% during the months of October to December, which was higher than anticipated. This follows a decline of 0.1% in the previous quarter.
This indicates that the economy has officially entered a technical recession, which is determined by consecutive quarters of declining GDP.
What was the most recent recession in the UK?
This is the first instance of the UK experiencing a recession since the first half of 2020, when the initial Covid-19 lockdown caused the economy to decline significantly.
Economists predict that the economic downturn will be brief, as they expect the GDP to increase starting in 2024.
However, the statistics are damaging for Mr. Sunak, who has promised to increase the economy as one of his top five priorities.
The economic promise of Shadow Chancellor Rachel Reeves has been completely ruined.
According to her, the Prime Minister’s plan is no longer effective and he cannot convincingly argue that the country has improved after 14 years of economic decline under the Conservative party, which has ultimately harmed Britain.
“This recession, attributed to Rishi Sunak, is concerning news for families and businesses throughout Britain.”
Chancellor Jeremy Hunt stated that the decline was a result of increased inflation and recent increases in interest rates, but he reassured that the economy is improving.
He stated that it was necessary to focus on combating inflation as the “right thing to do”.
Prime Minister Rishi Sunak’s pledge to grow the economy has been dealt a hammer blow after official figures revealed Britain fell into recession at the end of last year (PA)
The Chancellor informed broadcasters that the focus on combating inflation, which entails raising interest rates, has resulted in lower growth as expected. This approach is necessary as high inflation hinders sustainable long-term growth.
The current situation is showing an economy that is stronger than anticipated, with a decrease in inflation and an increase in real wages for the past six months.
“According to independent forecasters, if we remain steadfast, interest rates may begin to decrease by early summer. This will bring much-needed relief to families with mortgages.”
What is the reason for our economic downturn?
The decline in the fourth quarter was the largest since the first three months of 2021, during the peak of the pandemic.
The majority of economists predicted a 0.1% decrease in GDP during the months of October and December.
The Office for National Statistics reported that there was a decrease of 0.1% in output in December, following a revised growth rate of 0.2% in November. Additionally, the decline in October was also more significant than previously estimated, at 0.5% compared to the initial estimate of a 0.3% decrease.
The economic growth (GDP) of the United Kingdom on a quarterly basis.
Throughout the entire year, the economy experienced growth, but at a sluggish rate of 0.1%. This is a significant decline from the 4.6% growth seen in 2022 and is the smallest increase since the economic downturn following the financial crisis in 2009.
The Office for National Statistics reported that the decline was widespread throughout the economy during the fourth quarter.
Liz McKeown, the director of economic statistics at ONS, stated that there was a decline in all major sectors during the quarter. Manufacturing, construction, and wholesale were the primary factors contributing to this decrease in growth.
In December, the retail and wholesale industries had the largest impact on production, with the health and education sectors also experiencing a decline, according to the Office for National Statistics.
Monthly economic growth in the UK
According to Barret Kupelian, the main economist at PwC UK, although the UK is experiencing a technical recession, it is expected to be short-lived and not severe.
He stated that this event is likely to be one of the least severe economic downturns in recent history, as it is not a result of a sudden and prolonged decline due to a particular set of unfavorable economic conditions.
“In the early months of the year, there was a notable increase in business activity, which is expected to result in improved economic data.”
However, a technical recession is expected to strengthen the argument for a decrease in interest rates, as the Bank of England has already suggested that it is a matter of when, rather than if, a cut will occur.
What does the term “recession” mean?
There is no concrete explanation. It is considered a period of economic decline, but there is no universally accepted method to quantify the extent of the decline or the length of the period.
According to common understanding in the UK, a recession is defined as a consecutive decline in gross domestic product (GDP) for two quarters.
However, this indicates that if GDP decreases by 0.01% in one quarter and another 0.01% in the following quarter, we are technically in a recession.
This would result in a minor economic decline, which would be less severe compared to a scenario where the GDP decreases by 3% in one quarter and then increases by 1% in the following quarter, which would not qualify as a recession.
Different nations use varying methods to calculate economic downturns, considering factors such as the magnitude of the decline.
The source is from the Independent website.
