As the UK economy struggled for momentum, with households tightening their belts, higher defence spending in the second half of last year was a factor that prevented it from contracting by more than it did.
The second estimate by the Office for National Statistics of national income, as measured by gross domestic product last year, showed that extra cash for the military, and an increase in government spending more generally, masked a deep and persistent recession in manufacturing and downturns in several other sectors of the economy.
A recession is defined as two consecutive quarters of contraction, and the UK achieved this in the third and fourth quarters of 2023 when GDP fell by 0.1% and 0.3% respectively.
Most economists have described this as a technical recession because of its shallowness and the likelihood of a swift, though equally shallow, rebound this year.
However, the recession could be considered to be deeper when Britain’s rising population is taken into account. GDP per head was estimated to have fallen by 0.6% in the fourth quarter and to have not grown since the first three months of 2022, the ONS said.
Across 2023 as a whole, GDP per head is estimated to have fallen by 0.7% when taking into account the latest ONS assessment of migration and its impact on the number of people in the UK.
One factor that illustrates the UK’s longer term decline can be found in trade data published on Thursday, where it is clear that exporters have had a tough time.
The difficulties stretch back to the financial crash of 2008 and the recession that came immediately afterwards. They were made worse by the lack of private investment that followed the Brexit vote in 2016 and trade restrictions with the EU since 2021.
To illustrate the point, the balance of payments deficit in the first quarter of 2011 was £2.9bn. In the fourth quarter of 2023, the deficit had expanded to £26.3bn, or 3.9% of GDP, a widening of £5.9bn from the third quarter. These figures exclude the often-volatile trade in gold and other precious metals.
One of the biggest elements of the decline across the second half of last year came from the UK’s trade in goods.
A recent study by the ONS showed total goods exports in 2023 fell by £15.2bn, or 4.6%, compared with 2022, “with substantial decreases in exports to both EU and non-EU countries”.
To give a comparison with the pre-pandemic period, when the international trade scene was more settled, total goods exports were down by £44.7bn, or 12.4%.
The rocketing price of imported raw materials and energy played a big part in the rising cost of making goods in the UK and the difficulty of selling higher priced goods abroad.
As a message to the government, it emphasises how open and vulnerable the UK manufacturing sector has become to global shocks, and how the economy needs to be much more resilient.
And a higher population, which brings with it higher public spending, can bolster GDP, but unless workers are able to increase their productivity, the level of GDP per head will struggle to regain 2022 levels.
