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LONDON – The British economy slipped into a technical recession in the final quarter of last year, early figures showed on Thursday.
According to the Office for National Statistics, Britain’s gross domestic product contracted by 0.3% in the final three months of the year, recording its second consecutive quarterly decline.
Although there is no official definition of a recession, two consecutive quarters of negative growth are generally considered a technical recession.
Economists polled by Reuters had given a consensus forecast of -0.1% for the October-December period.
All three main sectors of the economy contracted in the fourth quarter, with the ONS recording declines of 0.2% in services, 1% in manufacturing and 1.3% in construction output.
For the whole of 2023, UK GDP is expected to have increased by just 0.1% compared to 2022. For the month of December, production contracted by 0.1%.
British Finance Minister Jeremy Hunt said high inflation remains “the biggest obstacle to growth” as it forces the Bank of England to keep interest rates on hold and slow economic growth.
“But there are signs that the UK economy is experiencing a turnaround. “Forecasters agree that growth will strengthen over the next few years, wages will rise faster than prices, mortgage rates have fallen and unemployment will remain low,” he added.
Inflation has fallen significantly in the UK, but is still well above inflation in the country’s other economies and the Bank of England’s 2 percent target, putting pressure on household finances. The overall value of the consumer price index was 4% year-on-year in January.
Notably, GDP per capita – adjusted for population growth – contracted 0.6% in the fourth quarter, after declining 0.4% in the previous three months, and continued to decline in each quarter last year . For the whole of 2023, seasonally adjusted GDP per capita contracted by 0.7%.
“Shallow and short-lived” recession
Marcus Brookes, chief investment officer at Quilter Investors, said the numbers most likely indicate the recession “may be superficial and short-lived, which may not reflect the true state of the economy,” which is expected to produce a “subdued recovery” across the board Year 2024.
“The decline in UK GDP in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labor market and low productivity growth, but also adverse weather conditions,” Brookes said by email.
“These factors influenced the performance of the services and construction sectors, which are the main drivers of the UK economy.”
He noted that some of these obstacles were temporary and had already begun to ease, with January inflation numbers falling short of forecasts for a revival.
“We expect inflation to fall in the coming months, potentially easing pressure on UK households and supporting the recovery of the consumer-led economy,” Brookes added.
“The key indicator to watch is inflation in the services sector, which accounts for the majority of economic activity and employment in the UK and reflects the strength of wage growth and consumer demand, which are critical to the UK’s recovery. “
Neil Birrell, chief investment officer at Premier Miton Investors, said Thursday’s figures and weaker-than-expected inflation data “could raise concerns about economic strength in the year ahead.”
“Most sectors of the economy have been weak, but the optimists will point out that there is plenty of scope for rate cuts should the current trend in inflation and growth accelerate.”
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2024-02-15 08:36:05
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