The second half of 2023 saw the British economy enter a recession, providing a difficult background for Prime Minister Rishi Sunak’s anticipated election this year. Sunak has pledged to accelerate growth.
According to official figures, the gross domestic product (GDP) shrank by 0.1% between July and September before contracting by 0.3% in the three months leading up to December.
According to a Reuters survey, all experts had predicted a 0.1% fall in the fourth quarter, but the actual contraction was more severe.
Sterling’s Decline and Calls for Government Support
About the dollar and the euro, sterling declined. In a budget plan that was due on March 6, companies demanded additional assistance from the government, and investors increased their bets on the Bank of England (BoE) lowering interest rates this year.
According to figures released on Thursday, Britain and Japan are now two of the Group of Seven major nations experiencing a recession, albeit one that is probably going to be mild and transient compared to previous recessions. Data on Canada’s GDP for the fourth quarter are still pending.
Britain’s economy is just 1% larger than it was in late 2019, prior to the COVID-19 epidemic; among the G7, only Germany is performing worse.
Among his main promises to voters last year was to get the economy growing. With a reputation for economic acumen, his Conservative Party has ruled British politics for the majority of the last seven decades. Opinion surveys, however, indicate that Labour is now more trusted when it comes to the economy, opening a new tab.
What Analysts have predicted About Recession?
Analysts have predicted that British families will experience their first decline in living standards between national elections since the Second World War.
The GDP numbers, according to Ruth Gregory, deputy chief UK economist at Capital Economics, have more political than economic relevance because voters are scheduled to elect representatives in two seats on Thursday.
“The news that the UK slipped into technical recession in 2023 will be a blow for the prime minister on a day when he faces the prospect of losing two by-elections,” Gregory stated.
According to Jeremy Hunt, the finance minister, there are “signs the British economy is turning a corner” and “we must stick to the plan – cutting taxes on work and business to build a stronger economy.”
The Labour Party, in opposition, denied the allegations.
Labour’s senior economics officer, Rachel Reeves, claimed that the prime minister “can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives.”
According to media sources, if his budget was constrained by low funds, Hunt was attempting to remove billions of pounds from public expenditure plans to pay pre-election tax cuts.
According to the Office for National Statistics (ONS), the GDP expanded by 0.1% in 2023 over 2022.
CUTS IN INTEREST RATE PRIOR?
The BoE’s rate decrease as early as June is once again being discussed by investors after data released on Wednesday revealed that inflation stayed at a lower-than-expected 4.0% in January. However, the BoE’s caution was reinforced by the robust wage growth that was published on Tuesday.
Hunt expressed optimism that the central bank may begin reducing borrowing prices by “early summer.” At the June meeting of the BoE, investors were pricing in a roughly 68% possibility of a first rate drop.
Although there have been some indications of an economic recovery, Governor Andrew Bailey stated on Wednesday that he still needed further proof that inflationary pressures were decreasing.
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