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Official statistics published on Thursday confirmed the UK economy slipped into a technical recession in the second half of last year.
The Office for National Statistics said gross domestic product fell 0.3 per cent quarter on quarter in the last three months of 2023, following a 0.1 per cent fall in the previous period, confirming initial estimates.
This means that the economy contracted for two consecutive quarters, the definition of a technical recession, reflecting the impact of the cost of living crisis and high borrowing costs.
Liz McKeown of the ONS said: “Our updated set of GDP figures shows quarterly growth unrevised across 2023, with a little growth in the first quarter and small contractions in the latter half of the year.”
The revised data offers little cheer to Prime Minister Rishi Sunak, casting a shadow over his pledge to “grow the economy”. The Conservative party trails Labour heavily in opinion polls ahead of the general election expected in the autumn.
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Chancellor Jeremy Hunt said: “Last year was tough as interest rates had to rise to bring down inflation, but we can see our plan is working. Inflation has fallen decisively from over 11 per cent to 3.4 per cent, the economy grew in January and real wages have increased for eight months in a row.”
Labour’s shadow chancellor Rachel Reeves said the prime minister should call an election: “Rishi Sunak has broken his promise to grow the economy and left Britain in recession with working people paying the price.”
The ONS last month published GDP figures for January showing the economy returned to growth with 0.2 per cent month-on-month expansion. Other indicators, such as retail sales, business sentiment and mortgage approvals, all improved from last year.
Philip Shaw, economist at investment bank Investec, calculated that even if output remained flat over February and March, the result would be a quarterly increase in GDP in the first quarter.
The detailed figures published by the ONS on Thursday showed some positive news for consumers.
Real household disposable income, the amount available to spend after taking inflation into account, grew 0.7 per cent in the final three months of 2023 after barely growing in the previous three months.
The household saving ratio — the proportion of income that is saved — rose to 10.2 per cent in the final quarter, from 10.1 in the previous three months, and above the long-term average of 7 per cent. It was helped by pension savings and social benefits.
Better household finances could help stimulate a recovery in both spending and overall growth. Economists expect the improvement to continue this year as inflation declines and wages rise.
“We think real household disposable income will continue to rise this year due to lower inflation and the boost from further cuts to national insurance tax announced in the March Budget from April,” said Ashley Webb, economist at Capital Economics
In contrast, the current account deficit widened to 3.9 per cent of GDP in the final three months of 2023 from 3 per cent in the previous quarter because of a deteriorating trade picture. The deficit includes the UK trade balance and the net income from foreign investment and transfers, and is a measure of how much the economy relies on the inflow of foreign money.
Source: Economy - ft.com
