British economy falls into recession

UK GDP is set to fall for two consecutive quarters in the second half of 2023, pushing the economy into recession, according to the Office for National Statistics (ONS).

According to ONS data on February 15, the UK's GDP in the fourth quarter of 2023 decreased by 0.3% compared to the previous quarter. In the third quarter of 2023, the economy contracted by 0.1%. In theory, the UK has fallen into recession, having had two consecutive quarters of negative growth.

The fall was stronger than expected and the largest since early 2021, the ONS said. Overall, UK GDP is expected to grow by 0.1% in 2023 compared to 2022.

The three main sectors of the economy all contracted in the final quarter of last year, with services down 0.2%; manufacturing and construction down 1% and 1.3% respectively.

The UK economy has been stagnant for nearly two years. Inflation in the UK is slowing but remains higher than other economies and the Bank of England's (BoE) target of 2%. This has tightened household finances. The country's consumer price index (CPI) in the first month of 2024 increased by 4% compared to the same period last year.

Buses and pedestrians on a street in London (UK) on February 8. Photo: Reuters — Buses and pedestrians on a street in London (UK) on February 8. Photo: *Reuters*

The pound fell slightly against the dollar and euro after the GDP figures were released. “Businesses are no longer in the dark about the difficulties they face. This news should be a wake-up call for the government,” said Alex Veitch, director of policy and research at the British Chambers of Commerce and Industry. He said that in the coming weeks, British Chancellor Rishi Sunak will have to set out a clear strategy to help the economy and businesses get back on track.

However, the BoE predicts that the situation will improve from this year. Finance Minister Jeremy Hunt said on February 15 that "there are many signs that the UK is approaching a turning point". He affirmed that officials are sticking to the strategy of cutting taxes to build a stronger economy.

British media reported that Hunt is looking to cut billions of pounds in public spending, to offset proposed tax cuts in the budget plan to be announced next month.

Marcus Brookes, investment director at Quilter Investors, also believes the UK recession will be “mild and short-lived”. “UK GDP contraction in Q4 2023 is mainly due to persistently high inflation, a weak labour market and low productivity growth. However, weather factors are also a factor,” he said.

Brookes believes these barriers are temporary and are gradually disappearing. "Inflation should ease over the next few months, easing the pressure on British households and helping consumer spending recover," he added.

Ha Thu (according to Reuters, CNBC)

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