Britain’s economy descended into a recession in the latter part of 2023, setting a challenging stage for the forthcoming Prime Ministerial election for Rishi Sunak, who has pledged to enhance growth.
Official data revealed a 0.3% contraction in Gross Domestic Product (GDP) during the three months ending in December, following a 0.1% shrinkage from July to September.
The downturn in the fourth quarter surpassed all economist forecasts in a Reuters poll, which had anticipated a 0.1% decline.
Sterling depreciated against both the dollar and the euro, with investors increasing their wagers on the Bank of England (BoE) implementing interest rate cuts this year.
Businesses advocated for more governmental assistance, especially with a budget proposal scheduled for March 6.
This recent data positions Britain alongside Japan among the Group of Seven advanced economies experiencing a recession.
However, it’s expected to be brief and relatively mild compared to historical norms. Canada is yet to release GDP figures for the fourth quarter.
Currently, Britain’s economy is only 1% larger than its pre-pandemic level of late 2019, with only Germany faring worse among G7 nations.
Sunak’s pledge to revive economic growth was a central promise to voters last year.
Despite the Conservative Party’s longstanding dominance in British politics, Labour now garners more trust regarding economic matters, as indicated by opinion polls.
Analysts predict British households will encounter their first decline in living standards between consecutive national elections since World War II.
Ruth Gregory, deputy chief UK economist at Capital Economics, highlighted the political implications of the GDP figures, particularly as voters head to the polls in two constituencies.
She stated, “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.”
Finance Minister Jeremy Hunt emphasised the importance of sticking to the government’s plan of cutting taxes to fortify the economy, whereas the opposition Labour Party dismissed such claims, citing years of economic decline under Conservative governance.
Despite hopes for an economic rebound, data from the Office for National Statistics (ONS) indicated minimal growth of 0.1% throughout 2023, with the BoE forecasting a modest uptick of 0.25% in 2024.