British Prime Minister Rishi Sunak
Credit: Reuters File Photo
London: The UK economy has officially entered recession as a result of falling gross domestic product (GDP), spelling trouble for Prime Minister Rishi Sunak in a general election year as he had made “growing the economy” a key plank of his premiership.
Latest UK Office for National Statistics (ONS) data on Thursday revealed that the country’s GDP shrank 0.3 per cent between October and December 2023 and by 0.1 per cent in the July to September quarter. A recession is defined as two consecutive three-month periods where the economy contracts rather than grows.
"High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise,” said UK Chancellor Jeremy Hunt, in response to the statistics.
"But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low. Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy," he said.
The ONS figures show a steeper-than-expected fall, as economists had forecast a 0.1 per cent contraction. However, the data is an estimate at this stage and is subject to revision. Experts forecast that the recession is likely to be mild and short-lived, unlike past recessions of 2008 and 2009.
In January last year, Sunak had made growing the economy one of his five pledges ahead of an election year in 2024, besides halving inflation, getting debt falling, tackling illegal migration and cutting health service waiting lists. The latest analysis shows that the economy grew by only 0.1 per cent in all of 2023.
"Rishi Sunak has failed to turn the corner on 14 years of Tory economic decline. Britain is hit by a recession and it's working people who will pay the price. It's time for change. Only Labour will deliver it," said Opposition Labour Party Leader Keir Starmer in a social media statement.
"This is Rishi Sunak's recession and the news will be deeply worrying for families and businesses across Britain," added the party’s shadow chancellor Rachel Reeves.
Figures from the ONS showed that during the final three months of last year, there was a slowdown in all the main sectors that it measures to determine the health of the economy, including construction and manufacturing.
The UK economy struggled with productivity, particularly emerging from the pandemic. Strikes have also held back productivity as private and public sector workers across industries staged walkouts throughout 2023.
Recent figures showed that inflation, which measures the pace of price rises, remained at four per cent in January – twice the Bank of England's two per cent target. The central bank had been lifting interest rates to put the brakes on inflation but has kept them at 5.25 per cent since August last year.