The economy slumped into recession last year dealing a hammer blow to Rishi Sunak’s growth pledge, official figures showed on Thursday.
The Office for National Statistics said GDP fell by a worse than expected 0.3 per cent in the last three months of 2023. That followed a 0.1 per cent dip in the third quarter.
Economists define a recession as two consecutive quarters of negative growth. Labour and the Liberal Democrats immediately sought to tie the Prime Minister to the downturn hitting Britain, branding it “Rishi’s recession”.
But Chancellor Jeremy Hunt stated: “There are signs the British economy is turning a corner.”
Shadow chancellor Rachel Reeves responded: “The Conservatives have now put our economy into reverse.” More detailed data painted a bleaker picture than the headline figures, with GDP per person falling in every quarter last year and down 0.7 per cent over 2023 as a whole.
It was the first time the UK has experienced a recession since the Covid pandemic, and excluding the exceptional circumstances of lockdowns, it was the first downturn since the financial crisis in 2008 and 2009.
The pound fell on the recession confirmation, which saw a bigger GDP drop in the final quarter of last year than the 0.1 per cent expected by the City. Sterling was 0.1 per cent down at 1.26 US dollars and also 0.1 per cent lower at €1.17 mid-morning.
Economists were divided over what will happen this year as the country heads for an autumn general election.
James Smith, research director at the Resolution Foundation, said: “The big picture is that Britain remains a stagnation nation.”
But Martin Beck, chief economic adviser to the EY Item Club, said: “This year should see an improvement.”
Thursday’s figures show that GDP fell 0.1 per cent in December as consumers reined in their Christmas shopping after the cost-of-living crisis and also delayed on “discretionary” spending such as hair cuts and beauty treatments.
It followed growth of 0.2 per cent in November and a sharp decline of 0.5 per cent in October when a series of storms kept consumers away from the high street. The dominant services sector, which accounts for 80 per cent of Britain’s economic output, saw a contraction of 0.2 per cent.
The production sector, which includes manufacturing was down one per cent, while construction fell by 1.3 per cent. ONS director of economic statistics Liz McKeown said: “Retail and wholesale were the biggest overall downward pulls on the economy in December, partially offset by growth in computer programming and manufacturing.”
GDP inched forward by just 0.1 per cent over 2023 as a whole, following growth of 4.3 per cent in 2022.
Danni Hewson, head of financial analysis at brokers AJ Bell said: “The fact that the UK slipped into recession at the end of 2023 isn’t a surprise considering the cost-of-living crisis that hobbled us all over the year, but the size of the slump is slightly larger than had been expected.”
The recession is another setback for Mr Sunak’s government trailing Labour in the polls by some 20 points, with the Tories’ reputation for economic competence having already been trashed by Kwasi Kwarteng’s September 2022 “mini budget” during Liz Truss’s brief premiership. It means the Prime Minister has only met one of his five key pledges, to halve inflation, with the others being to grow the economy, reduce debt, cut NHS waiting lists and “stop the boats” crossing the Channel.
Liberal Democrat leader Sir Ed Davey said: “Rishi’s recession has savaged the British economy... leaving families to cope with spiralling prices.”
Mr Sunak and the Chancellor have signalled more tax cuts in the March 6 Budget, after reducing National Insurance in the autumn statement.
The overall tax burden on the nation, though, continues to go up towards a record high since after the Second World War due to a series of “stealth tax rises” including the freezing of income tax thresholds.
The latest economic figures came as voters were going to the polls in two by-elections, Kingswood and Wellingborough, where the Tories were battling to avoid defeats. If they lose one or both of the contests, it would mean the Government has clocked up more by-election defeats in a single parliament than any administration since Labour’s Harold Wilson from 1966-70.
