After Japan, the UK faces a slowdown; slipped into technical recession in second half of last year

Economists define the UK's recent declines in GDP as stagnation rather than a full-blown downturn, but it could increase pressure on the Bank of England to cut interest rates.

Bloomberg
First Published15 Feb 2024
Britain's prime minister Rishi Sunak
Britain’s prime minister Rishi Sunak (AP)

The UK slipped into a shallow recession in the second half of 2023, undercutting Prime Minister Rishi Sunak’s claim to be growing the economy in the run-up to a general election.

Gross domestic product fell 0.3% in the fourth quarter, more than the 0.1% drop economists forecast, Office for National Statistics figures Thursday show. It followed an unrevised 0.1% decline in the previous three months.

Economists define a technical recession as two straight quarters of falling output but the small scale of the declines suggests the UK is in stagnation rather than a full-blown downturn. It could nonetheless increase pressure on the Bank of England to cut interest rates from a 16-year high. 

Also Read | Germany overtakes Japan as land of rising sun enters recession

The pound slipped against the dollar after the release. It traded as much as 0.1% weaker at $1.2548, set for a third day of losses.

The figures are likely to be used by the opposition to attack the ruling Conservative government’s handling of the economy ahead of a general election expected in the second half of 2024. 

They come on the day of two special elections in which the Tories are expected to suffer heavy losses, with the party around 20 percentage points behind Labour in national opinion polls. 

Sunak made growing the economy one of five key pledges last year. However, the ONS figures show that the UK stagnated in his first full year as prime minister. Fourth quarter GDP was down 0.2% compared to a year earlier and growth was just 0.1% in 2023 as a whole.

The UK economy has been being hamstrung by the worst cost-of-living crisis in generations and a rapid rise in interest rates that squeezed borrowers. Industrial action in the rail and health sectors and a plunge in retail sales contributed to another fall in GDP in December. 

Bank of England Governor Andrew Bailey played down the significance of a technical recession this week, pointing to signs of an “upturn” in surveys covering the start of 2024.

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