UK Slips Into Recession In Q4

In a blow to Prime Minister Rishi Sunak, the British economy slipped into a mild recession at the end of 2023, figures from the Office for National Statistics showed Thursday.

Gross domestic product declined 0.3 percent sequentially in the fourth quarter, following a 0.1 percent fall in the prior period.

Economists had forecast another 0.1 percent fall for the fourth quarter.

The UK economy met the condition of technical recession, which is two consecutive quarters of negative GDP growth.

On taking office in 2022, Sunak had pledged to grow the economy and the latest data is a setback to the ruling party.

Capital Economics economist Ruth Gregory said today’s release is more politically important than it is economically.

The economy is likely to contract 0.1 percent in the first quarter, but that a modest recovery will take hold in the second half of this year, as inflation falls, taxes are cut and the drag from higher interest rates fades, the economist said.

It is services inflation and wages, not GDP that guide the Bank of England’s policy, ING economist James Smith said.

Services inflation and wage growth fell more quickly than the BoE had anticipated just a few months ago but the February meeting showed that policymakers are wary about future progress, the economist noted.

The stickier wage growth but lower than expected services CPI are unlikely to change that assessment. The economist expects the first interest rate cut to come in August.

The ONS said there were declines in all three major sectors in the fourth quarter. Services shrank 0.2 percent and production was down 1.0 percent. Construction output posted a 1.3 percent decrease.

On the expenditure-side, there was a fall in the volume of net trade, household spending and government consumption. The declines were partially offset by an increase in gross capital formation, the ONS said.

Real household spending slid 0.1 percent largely due to the lower spending on recreation and culture, miscellaneous goods and services and transport.

Driven by lower activity in education and health, government consumption dropped 0.3 percent.

On the other hand, gross fixed capital formation advanced 1.4 percent reflecting increases in investment in other buildings and structures.

Business investment posted a quarterly growth of 1.5 percent after rising 2.8 percent.

The UK’s trade deficit for goods and services was 1.6 percent of nominal gross domestic product in the fourth quarter.

Compared to the last year, real GDP declined 0.2 percent in the fourth quarter, confounding expectations for an increase of 0.1 percent.

In 2023, GDP growth eased sharply to 0.1 percent from 4.3 percent in 2022. This was the weakest growth since the financial crisis in 2009, excluding the year 2020.

In December, GDP dropped 0.1 percent, in contrast to the 0.2 percent expansion in November.

Official data today showed that the visible trade gap narrowed to GBP 13.99 billion in December from GBP 15.13 billion in November.

At the same time, the surplus on trade in services was almost unchanged at GBP 11.4 billion.

As a result, the overall trade deficit declined to GBP 2.6 billion from GBP 3.7 billion a month ago.