This is Rishi Sunak’s recession, declares Rachel Reeves, Labour’s Shadow Chancellor.
Reeves points out that the news that the UK is now in a technical recession will be “deeply worrying” for families and businesses.
Following the news that GDP shrank by a worse-than-expected 0.3% in October-December, Reeves says:
“Rishi Sunak’s promise to grow the economy is now in tatters.
The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than fourteen years of economic decline under the Conservatives that has left Britain worse off. This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain.
It is time for a change. We need an election now to give the British people the chance to vote for a changed Labour Party that has a long-term plan for more jobs, more investment and cheaper bills. Only Labour has a plan to get Britain’s future back.”
As flagged earlier, today’s GDP report shows the UK stagnated in the second quarter of 2023, before shrinking in both Q3 and Q4.
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Economic research institute NIESR point out that UK GDP per head remains lower than before the Covid-19 pandemic (having fallen through 2023).
Jeremy Hunt has now insisted that prioritising the fight against inflation was the “right thing to do”, after the UK slid into technical recession.
The Chancellor told broadcasters:
“We always expected growth to be weaker while we prioritised tackling inflation, that means higher interest rates, and that is the right thing to do because you can’t have long-term healthy growth with high inflation.
“But also for families when there is a cost-of-living crisis, when the cost of their weekly shop is going up, their energy bills are much higher, it is the right thing to do.
“The underlying picture here is an economy that is more resilient than most people predicted, inflation is coming down, real wages have been going up now for six months.
“If we stick to our guns, independent forecasters say that by the early summer we could start to see interest rates falling and that will be a very important relief for families with mortgages.”
The money markets expect the first rate cut to come by June.
City traders are now fully expecting three quarter-point cuts to UK interest rates this year, now the economy is in recession.
Reuters reports that UK rate futures point to about 75 basis points of cuts to Bank Rate in 2024, compared with about 70 basis points before this morning’s GDP data was released.
That means three cuts, lowering rates from 5.25% at present to 4.5% in December, are now fully priced in.
Labour have accused Jeremy Hunt of being “out of touch”, following his comments on the UK entering technical recession this morning, PA Media report.
A spokesperson for the Labour Party said:
“Jeremy Hunt’s comments are as insulting as they are out of touch.
“The Conservatives’ failure to take any responsibility for Rishi’s recession show why we need an election.”
As covered earlier (7.33am) chancellor Hunt blamed high interest rates for slowing growth, and claimed the UK economy was “turning a corner”.
The government must prioritise public investment rather than make “irresponsible tax cuts” to held the economy, argues Pranesh Narayanan, research fellow at IPPR.
“This time last year, the Prime Minister pledged to get the economy growing but today’s data, showing a mild technical recession, shows a stark lack of progress.
“Chronic underinvestment in hospitals, schools, net zero, and infrastructure has created a crumbling public realm and a broken economy.
“This should be a wake-up call that spurs the government to prioritise public investment rather than irresponsible tax cuts. Let’s fix our problems now rather than storing them up for later.”
There are reports this morning that Jeremy Hunt is considering slashing billions of pounds from public spending plans to fund pre-election tax cuts in next month’s budget.
According to the Financial Times, the Treasury are considering reducing projected spending rises to about 0.75% a year, releasing £5bn-£6bn for Budget tax cuts.
The current plan is for real-term increases in public spending of 0.9%, which was already expected to cause “implausible austerity” – and painful cuts to spending for departments whose budgets aren’t ringfenced.
The UK’s standard of living contracted all the way through 2023, today’s GDP report shows.
GDP per head – calculated by dividing the GDP of a country by its population – shrank in each of the four quarters of last year.
And it got worse through the year. GDP per head fell by 0.1% in January-March, then by 0.2% in April-June, before accelerating to a 0.4% fall in July-September and then a 0.6% drop in October-December.
This shows that the downturn in living standards was deeper than the headline changes to output and activity in the economy.
James Smith, research director at the Resolution Foundation, explains:
“Britain has fallen into recession, and a far deeper living standards downturn. Even this weak data is flattered by a rising population. After accounting for population growth, the UK economy hasn’t grown since early 2022, and fallen far behind its pre-cost of living crisis path, with an equivalent loss of around £1,500 per person.
“The big picture is that Britain remains a stagnation nation, and that there are precious few signs of a recovery that will get the economy out of it.”
TUC general secretary Paul Nowak says:
“The UK economy is in dire straits. After years of Tory stagnation, we are now in technical recession.
“The Conservatives’ economic failures are hitting jobs and living standards. With household budgets at breaking point, spending is down and the economy is shrinking. At the same time our crumbling public services are starved of much-needed funding.
“After being in power for 14 years, the Tories have driven our economy into a ditch and have no idea how to get out.
“It’s time for a government with a serious long-term plan and strategy for renewal, to revive our economy and sustain growth into future.”
This is Rishi Sunak’s recession, declares Rachel Reeves, Labour’s Shadow Chancellor.
Reeves points out that the news that the UK is now in a technical recession will be “deeply worrying” for families and businesses.
Following the news that GDP shrank by a worse-than-expected 0.3% in October-December, Reeves says:
“Rishi Sunak’s promise to grow the economy is now in tatters.
The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than fourteen years of economic decline under the Conservatives that has left Britain worse off. This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain.
It is time for a change. We need an election now to give the British people the chance to vote for a changed Labour Party that has a long-term plan for more jobs, more investment and cheaper bills. Only Labour has a plan to get Britain’s future back.”
As flagged earlier, today’s GDP report shows the UK stagnated in the second quarter of 2023, before shrinking in both Q3 and Q4.
Britain’s slide into recession could put more pressure on the Bank of England to consider cutting interest rates soon, to help the economy.
Professor Costas Milas, of the University of Liverpool’s management school, says the 0.3% quarter-on-quarter drop in GDP in Q4 2023 is “absolutely shocking “, and also changes the “monetary picture” facing the BoE.
Professor Milas tells me:
The drop in GDP is even worse than the 0.1% drop I predicted recently (details here) based on the “follow the money” argument, that is, the very fact that divisia money [a measure of liquidity in the economy] has been shrinking consistently since 2023.
The Bank’s MPC (which predicted 0% growth in the February monetary policy report) cannot, and should not, ignore this shocking drop in GDP not least because it will carry over negative momentum in early 2024 and, at the same time, will accelerate the drop in inflation.
The latest figure, and the fact that the economy is in (technical) recession will definitely bring into the picture a possible interest rate cut as early as March.
The UK’s fall into recession is a blow to the government, coming just as the polls opened at two byelections in Wellingborough and Kingswood.
It certainly doesn’t help the government to claim that their plan is working – a familiar refrain in recent months.
Chancellor of the Exchequer Jeremy Hunt is pinning the blame for the recession on high interest rates – which the Bank of England has raised to a 16-year high of 5.25%.
Hunt says:
“High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high - so the Bank of England can bring inflation down - low growth is not a surprise.
“But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low. Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”
Liz McKeown, the ONS director of economic statistics, says manufacturing, construction and the wholesale industry were the biggest drags on growth in the fourth quarter of 2023.
McKeown explains:
“Our initial estimate shows the UK economy contracted in the fourth quarter of 2023. While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat.
“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery.
“The latest data showed that health and education performed less well than initially estimated in both October and November. Early indications suggest they both contracted in December. Retail and wholesale were the biggest overall downwards pulls on the economy in December, partially offset by growth in computer programming and manufacturing.”
The UK economy has now failed to grow for the last three quarters.
GDP rose by 0.2% in January-March 2023 (which has been revised down from a previous estimate of 0.3%).
It then stagnated in April-June, before shrinking by 0.1% in July-September – and then this morning’s 0.3% slump in October-December.
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2024-02-15 06:18:00Z
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