GDP fell 0.3% in final quarter of last year, dealing blow to Rishi Sunak’s election campaign
The Office for National Statistics said all main sectors fell in the final quarter of 2023, with manufacturing, construction and wholesale being the biggest drags on growth © Bloomberg
In the aftermath of the recession striking the UK economy in 2023, the repercussions are stark and undeniable. The Office for National Statistics paints a grim picture, with all major sectors experiencing a downturn in the final quarter of 2023, particularly impacting manufacturing, construction, and wholesale industries. This economic slump not only challenges the efficacy of Rishi Sunak’s growth initiatives but also exacerbates the prevailing cost of living crisis, casting a shadow over household spending and business vitality.
As the economy contracted by 0.3 per cent in the last quarter of 2023, following a 0.1 per cent decline in the previous quarter, the stage is set for a pivotal juncture. Jeremy Hunt faces the daunting task of navigating the impending Budget amid mounting pressure to balance public spending cuts with pre-election tax relief. The Chancellor’s recent shift from fueling hopes of tax reductions to tempering expectations underscores the gravity of the situation.
The figure presents a daunting scenario for Jeremy Hunt as he contemplates significant cuts to public spending in the upcoming Budget to finance tax reductions ahead of the election. Despite previously raising expectations within the Tory party regarding tax cuts, the Chancellor is now working to temper those hopes.
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The UK economy largely stagnated in 2023
Labour asserted that the Prime Minister’s economic commitments have crumbled, with Shadow Chancellor Rachel Reeves declaring, “The Prime Minister can no longer credibly assert that his strategy is effective or that it has reversed over 14 years of economic decline under the Conservatives, leaving Britain in a worse state.”
Nonetheless, Hunt remained steadfast, pointing to indications that the British economy is on the cusp of a positive shift. “Forecasters concur that growth will bolster in the coming years, with wages outpacing inflation, reduced mortgage rates, and sustained low unemployment,” he emphasized.
UK GDP contracted at the end of last year, but other measures of activity remained stronger
When considering this population growth figure in the UK, the statistics paint an even bleaker picture. Output per capita declined by 0.7 percent in 2023, experiencing decreases in every quarter and failing to show growth since the beginning of 2022.
While two consecutive quarters of contracting GDP technically classify as a recession, numerous economists argue that stagnation better characterizes the situation without a more prolonged downturn.
James Smith, Research Director at the Resolution Foundation, remarked, “Britain has descended into recession, accompanied by a much deeper downturn in living standards.” However, Andrew Bailey, Governor of the Bank of England, cautioned against overemphasizing the significance of the economy slipping into a technical recession, noting that it was expected to be “very shallow.”
Market indicators reflect the prevailing uncertainty, with expectations of approximately three quarter-point interest rate cuts by the Bank of England this year. The probability of the first cut being implemented by June stands at 65 percent. Meanwhile, interest rate-sensitive 2-year gilt yields remained relatively stable at 4.56 percent, while the FTSE 100 index of leading stocks saw a modest increase of 0.4 percent. Additionally, the value of sterling rose marginally to $1.258.
Economists surveyed by Reuters had anticipated a 0.1 percent contraction in the economy for the final quarter, citing factors such as high borrowing costs, inflation, and strikes affecting economic activity. In contrast, the UK economy experienced sluggish growth in 2023, expanding by only 0.1 percent. This performance significantly lags behind the 2.5 percent growth recorded in the US and the 0.5 percent growth observed in the eurozone.
UK GDP per head contracted in 2023
Gross domestic product per head in real prices, £
The timing of this data release coincides with heightened political stakes for the Tory party, as it faces the risk of losing two seats in upcoming by-elections on Thursday, one in Wellingborough, Northamptonshire, and the other in Kingswood near Bristol.
Furthermore, the Office for National Statistics (ONS) reported that all major sectors of the economy experienced declines in the final quarter, with manufacturing, construction, and wholesale sectors exerting the most significant downward pressure on growth. However, this negative trend was partially mitigated by increases in the hospitality industry and the rental of vehicles and machinery.
The UK economy underperformed others
The Bank of England (BoE) recently revised its forecast for 2024 economic growth, now projecting a growth rate of 0.25 percent, a significant improvement from its previous prediction of zero growth. Additionally, the BoE anticipates a growth rate of 0.75 percent for 2025.
These GDP figures come on the heels of the release of UK inflation data earlier this week, revealing a January price growth rate of 4 percent, consistent with December’s rate and lower than initially forecasted by the BoE.
Conclusion:
Amidst these uncertainties, the path forward demands decisive action and prudent policy measures to mitigate the adverse effects of the recession. As the Bank of England contemplates interest rate adjustments and market expectations fluctuate, the need for strategic interventions to stimulate growth and restore confidence in the economy becomes more pressing than ever. Ultimately, the resilience of the UK economy hinges on its ability to adapt and innovate in the face of adversity, safeguarding prosperity for generations to come.
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