Report: UK Economy Slips into Technical Recession

Facts

• According to a report released by the Office for National Statistics on Thursday, the UK entered a technical recession at the end of 2023 after registering two consecutive quarters of negative economic growth.¹
• The UK's gross domestic product (GDP) reduced by 0.3% in Q4 of 2023 — far more than the 0.1% anticipated by economists — after shrinking 0.1% in the previous three-month period.²
• From October to December, the three main sectors of the economy — services, industrial production, and construction — fell by 0.2%, 1%, and 1.3%, respectively. In addition, GDP per capita contracted by a seasonally adjusted 0.7% last year, driven by a 0.6% decline in Q4.³
• Meanwhile, Finance Minister Jeremy Hunt — who attributes stagnant growth to high interest rates — is expected to introduce moderate tax cuts during the government's annual budget announcement next month.⁴
• However, he has reportedly agreed to scale back his intended tax cuts ahead of the looming general election while the Treasury explores greater spending cuts than expected after the general election.⁵
• This comes as inflation remains well above the Bank of England’s 2% target. However, the annual inflation rate of 4% in January 2024 is far lower than the 11.1% record set in October 2022.⁶

Sources: ¹Al Jazeera, ²Associated Press, ³CNBC, ⁴CNN, ⁵The Telegraph and ⁶Yahoo Finance.

Narratives

• Left narrative, as provided by POLITICO. Rishi Sunak, Jeremy Hunt, and the Conservatives have mismanaged the UK economy, leading it into a recession with little hope in sight. Ordinary Brits are experiencing the pain from the economic collapse, and it's easy to understand why the Labour Party is favored to win the next election. Sunak's priorities are all over the place, and he is banking on a reckless tax cut to save his political future. However, UK citizens know that the Tories' failed policies are responsible for this recession and that the UK needs a change.
• Right narrative, as provided by Spectator (UK). There's no denying that the second half of 2023 was painful for the UK economy, but slipping into a technical recession doesn't foreshadow long-lasting doom. All measures indicate the UK is poised for a speedy recovery and that the 'recession' is extremely mild with little impact on the broader economic outlook. High interest rates have primarily contributed to slowing growth, and rate cuts could spur a boom. The Conservatives certainly have their work cut out for them, but they are hardly in a disastrous position.

Predictions