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UK Economy in Shallow Recession, Rishi Sunak Faces Electoral Challenge

Kalyani Jha
28 Mar, 2024

Official figures released on Thursday confirmed that Britain’s economy slipped into a shallow recession last year, posing a significant challenge for Prime Minister Rishi Sunak to reassure voters about the economy’s stability ahead of an expected election later this year. The Office for National Statistics (ONS) reported a 0.1% contraction in GDP in the third quarter and a further 0.3% decline in the fourth quarter, consistent with earlier estimates.

The data presents a concerning backdrop for Sunak, with the opposition Labour Party labeling it as “Rishi’s recession,” amplifying pressure on the government to spur economic recovery. Martin Beck, chief economic advisor at EY ITEM Club, highlighted the subdued growth outlook for 2024, with expectations of growth remaining below 1%, albeit with a potential acceleration in momentum later in the year.

Despite these challenges, early indicators suggest a modest rebound at the start of 2024, with January witnessing a 0.2% monthly GDP growth, alongside positive trends in February and March according to unofficial surveys. The government’s recent tax cuts and anticipated interest rate adjustments are anticipated to provide a further boost to economic prospects this year.

However, the UK’s recovery from the COVID-19 pandemic has been sluggish compared to its peers, with the economy just 1% larger than pre-pandemic levels by the end of 2023. This lackluster growth was reflected in GDP per person, which declined by 0.6% in the fourth quarter and 0.7% throughout 2023.

Amid these economic dynamics, the Bank of England (BoE) is closely monitoring inflation trends, hinting at potential rate cuts to stimulate growth. While BoE policymaker Jonathan Haskel downplayed immediate rate adjustments, citing a cautious approach, analysts remain optimistic about a gradual improvement in consumer spending fueled by rising real disposable income.

The latest current account deficit figures, although slightly narrower than expected, still highlight challenges in trade dynamics, with the underlying deficit expanding to 3.9% of GDP. These economic indicators underscore the delicate balance policymakers must navigate to steer Britain’s economy towards sustained recovery amidst global uncertainties.