UK economy went into recession last year, data confirms

Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday (Mar 28), leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.

Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said.

It added that the size of the recession was slightly smaller than initially thought due to minor revisions to the data.

The figures will be disappointing for Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession”.

Labour said the government is failing to deliver growth. Rachel Reeves, the party’s shadow chancellor, said: “Rishi Sunak has broken his promise to grow the economy and left Britain in recession with working people paying the price.”

Martin Beck, chief economic advisor at EY Item Club, said: “The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent. However, an acceleration in momentum this year remains on the cards.”

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Signs of recovery

Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.

Tax cuts announced by finance minister Jeremy Hunt and expectations of interest rate cuts are likely to help the economy in 2024.

However, Britain remains one of the slowest countries to recover from the effects of the Covid-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.

The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.

GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.

Sterling was little changed against the dollar and the euro after the data release.

The Bank of England (BOE) has said inflation is moving towards the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8 per cent expansion.

BOE policymaker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off”, despite dropping his advocacy of a rise at last week’s meeting.

Earning more, saving more

Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.

Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.

“Consumer confidence has been improving gradually over the last year… as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” he said.

The savings ratio – how much of incomes that are saved – rose to 10.2 per cent in the fourth quarter, from 10.1 per cent in the three months through September. Economists said that the saving ratio remaining higher than pre-pandemic levels could suggest that any uplift to the economy from improved household finances may be smaller than expected.

The ONS said that household spending, investment and trade were drags on the economy at the end of last year, partially offset by an increase in government consumption. Household consumption slipped 0.1 per cent in the final quarter, driven by lower spending on recreation and culture, household goods and services, transport and clothing.

Britain’s current account deficit totalled nearly £21.2 billion (S$36 billion) in the fourth quarter, slightly narrower than a forecast of £21.4 billion shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.

The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP. REUTERS, BLOOMBERG