Tag: recession

Gross domestic product fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent decline in the third quarter, according to data published by the Office for National Statistics…reports Asian Lite News

The UK slipped into a technical recession at the end of last year, dealing a serious blow to Rishi Sunak’s pledge to “grow the economy” as the cost of living crisis continued to hit household spending and business activity.

Gross domestic product fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent decline in the third quarter, according to data published by the Office for National Statistics.

The figures create a challenging backdrop for Jeremy Hunt as he considers slashing billions of pounds from public spending plans in next month’s Budget to fund pre-election tax cuts. Having raised Tory hopes of tax cuts in the past few weeks, the chancellor is now trying to suppress them.

Labour claimed the prime minister’s pledges on the economy were “now in tatters”. Shadow chancellor Rachel Reeves said: “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 that has left Britain worse off.”

But Hunt insisted there were signs the British economy was “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,” he added.

The figures look worse if you take into account the increase in the UK’s population. Output per head contracted 0.7 per cent in 2023, falling in every quarter last year and failing to grow since the start of 2022.

Two consecutive quarters of contracting GDP is defined as a technical recession, though many economists believe stagnation is a better description without a more sustained downturn.

James Smith, Resolution Foundation research director, said: “Britain has fallen into recession and a far deeper living standards downturn.”

But this week Andrew Bailey, BoE governor, warned against putting “too much weight” on the economy slipping into a technical recession as it was expected to be “very shallow”.

Markets are now pricing in around three quarter-point interest rate cuts by the Bank of England this year, with a 65 per cent probability of the first cut being delivered by June.

Interest rate-sensitive 2-year gilt yields were roughly flat at 4.56 per cent, while the FTSE 100 index of blue-chip stocks rose 0.4 per cent. Sterling rose 0.1 per cent to $1.258.

Economists polled by Reuters had forecast the economy would contract by 0.1 per cent in the final quarter as high borrowing costs, inflation and strikes hit activity.

In 2023, the economy largely stagnated as it grew only 0.1 per cent. This was well below the 2.5 per cent expansion registered in the US, and weaker than the 0.5 per cent growth of the eurozone.

The data comes as the Tory party risks losing two seats in by-elections on Thursday in Wellingborough in Northamptonshire and in Kingswood near Bristol.

The ONS said all the main sectors of the economy fell in the final quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery.

There was a fall in the volume of net trade, household spending and government consumption in the quarter, only partially offset by an increase in investment.

The ONS said output in December was down 0.1 per cent from the previous month, softer than the 0.2 per cent contraction forecast by analysts.

Sanjay Raja, chief UK economist at Deutsche Bank, said the contraction in the fourth quarter represented a “meaningful miss on GDP” for the BoE’s Monetary Policy Committee.

“There’s clearly more spare capacity in the economy than assumed in their recent projections,” he said, adding that the data would “no doubt become uncomfortable especially with the bank rate at highly restrictive levels”.

The BoE this month upgraded its forecast for 2024 growth, which it now says will be 0.25 per cent — up from its previous prediction of zero growth. It forecasts 0.75 per cent growth for 2025.

The GDP figures follow UK inflation data published on Wednesday that showed price growth at 4 per cent in January, the same rate as December and lower than forecast by the BoE.

However, on Tuesday official data also revealed that pay growth was still strong, raising concerns about the persistence of underlying price pressures.

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The economy entered a downturn at the end of 2023, official figures showed last week. However, the Bank of England signalled that there was unlikely to be an imminent interest rate cut…reports Asian Lite News

The UK recession may already be over and there are now “distinct signs of an upturn”, the Bank of England’s governor has said. By historical standards “this is the weakest recession by a long way,” Andrew Bailey told MPs.

The UK economy entered a downturn at the end of 2023, official figures showed last week. Nevertheless, the Bank signalled on Tuesday that there was unlikely to be an imminent interest rate cut.

On Friday, the Office for National Statistics said the economy shrank by 0.3% between October and December. It had already contracted in the period between July and September. The UK is considered to be in recession if it fails to grow for two successive quarters.

But Ben Broadbent, deputy governor of the Bank of England, who answered MPs’ questions alongside Bailey, said this definition of a recession was “unhelpful”, and pointed out that other countries, such as the US, calculate it differently.

MPs repeatedly pressed Bank officials on why they were not already cutting interest rates. Conservative MP John Baron said the economy was “flashing red”.

But the Bank said it was waiting for further evidence in areas such as wage growth and the number of job vacancies to show that inflation – which measures the pace of price rises – had turned decisively.

Bailey pointed to the possibility that inflation is likely to be helped by a fall in energy prices. Ofgem, the energy regulator, is expected on Friday to lower the price cap on UK electricity and gas bills from April.

But Bailey said while that is likely to bring overall inflation down to the Bank of England’s 2% target during the spring, over the year it could rise again. “We’re beginning to see things going in the right direction,” said he said. “We need to see more evidence of that… and that’s what will shape my vote going forwards.”

Broadbent said interest rate cuts were possible this year. “In my view that is the more likely direction in which Bank rate is likely to move,” he said. “But even if that proves to be the case, the timing of any adjustment can only depend on the actual evolution of the economic data.”

Hints at interest rate cut

Prime Minister Rishi Sunak was slammed after the Office for National Statistics said the economy shrank by 0.3 per cent at the end of last year. Shadow chancellor Rachel Reeves said it left his pledge to grow the economy “in tatters”.

Chancellor Jeremy Hunt blamed efforts to tackle high inflation and the recent run of interest rate rises, but maintained that the economy was turning a corner.

“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,” Hunt said in a statement.

“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.”

The revelation the UK is in recession led to increased pressure on the Bank of England to cut interest rates.

The New Economics Foundation think tank said it was “no surprise” the UK had fallen into recession, “given this government’s mismanagement of the economy and the Bank of England’s panicked interest rate rises”.

But now the governor of the Bank of England has hinted that it may cut interest rates sooner as inflation does not need to reach the 2 per cent before they do so.

Bailey told the the treasury committee that although “the quantity side of the labour market remains tight”, the Bank of England will consider progress in pay, labour market and services before making the decision, “But it’s the progress of those three things. We don’t need inflation to come back to target before we cut interest rates, I must be very clear on that, that’s not necessary. We’ll be looking for sustained progress on those things to reach that judgment about how long this period of restrictive policy needs to be.”

Along with the UK and Japan, Ireland and Finland also went into technical recessions in the fourth quarter. Ireland registered a quarter-on-quarter GDP contraction of 0.7 per cent and 1.9 per cent in Q3 and Q4 respectively. On the other hand, Finland’s GDP shrank by 0.4 per cent and 0.9 per cent in the same periods.

With the fourth quarter GDP results of several countries yet to be released, one can’t be certain if the above-mentioned four countries alone will face recession. At least 14 countries witnessed a shrinking GDP during the July-September quarter. The 10 other countries — Denmark, Luxembourg, Moldova, Estonia, Ecuador, Bahrain, Iceland, South Africa, Canada, and New Zealand — are still at risk of slipping into recession. Denmark, Luxembourg, Moldova, and Estonia were already in recession by the third quarter.

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Given the sharp slowdown in price growth, the think-tank expects the BoE to be in a position to start cutting interest rates from the current 5.25 per cent level in May…reports Asian Lite News

The UK may have narrowly slipped into a technical recession at the end of 2023, according to estimates from a leading think-tank, underscoring the fragile health of the economy as the country heads towards a general election.

Gross domestic product edged down by 0.1 per cent in the final three months of last year, following an equal decline in the previous quarter, according to the National Institute of Economic and Social Research.

A technical recession is defined as two consecutive quarters of contracting GDP.

The outlook should improve in 2024 as inflation slows and wages continue to rise, the think-tank added, but it warned that whoever wins the election expected this year will inherit an economy that is “bereft of significant growth”. 

“The overall picture of flatlining output in the United Kingdom, which we have seen now for almost two years, continues,” Niesr said in research published on Wednesday.

The Office for National Statistics is due to report fourth-quarter GDP on February 15. The figures will be politically sensitive, as chancellor Jeremy Hunt prepares for a March Budget that the Conservatives hope will boost their re-election chances.

Hunt has said 2024 should be the year when the country should “throw off our pessimism and declinism about the UK economy”. Prime Minister Rishi Sunak last year pledged to “grow the economy”.

Other forecasters also expect the final set of official figures for 2023 to confirm it was a year with little economic growth.

Last week the Bank of England estimated that the economy flatlined in the final quarter of the year and projected that GDP would expand by just 0.25 per cent in 2024. 

Niesr was more upbeat about 2024 and predicted the economy would expand by 0.9 per cent this year.

It also said inflation would fall faster than the BoE expected, and predicted price growth would hit 1.5 per cent in April thanks to falling energy prices. 

Given the sharp slowdown in price growth, the think-tank expects the BoE to be in a position to start cutting interest rates from the current 5.25 per cent level in May.

The combination of slower inflation and sustained wage growth should mean real household disposable incomes will rise by 1.9 per cent on average in 2024-25, Niesr predicted.

But, for the bottom half of income distributions, living standards would be between 7 and 20 per cent lower in 2024-25 compared with 2019-20. They would not return to pre-pandemic levels until 2027, the think-tank added.

Niesr also warned that the UK’s trend rate of growth, or the sustainable pace at which it can expand, remained low given depressed levels of investment and sluggish productivity figures. 

The think-tank estimated the UK’s trend growth rate was just 0.9 per cent, far less than the 2.3 per cent rate in the decades leading up to the global financial crisis, and 1.2 per cent from that point until the pandemic.

“Raising this trend rate of growth should be at the top of the government’s priorities for economic policy,” Niesr said. 

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Economists have predicted that GDP slipped 0.1% in the three months through September, a Bloomberg survey found as of Friday afternoon. The BOE expects unemployment, now 4.3%, to rise to 5.1% by 2026…reports Asian Lite News

Britain is probably already in a recession after soaring interest rates and rising unemployment turned households more cautious about spending, according to an analysis by Bloomberg Economics.

The researcher estimates that there’s a 52% chance of a mild recession in the second half of this year, as defined by two consecutive quarters of contraction. The analysis was published Monday ahead of official data on gross domestic product due Friday.

A recession would be a headache for Prime Minister Rishi Sunak, due to fight an election next year. A recession could increase the chances of the Bank of England pivoting toward reducing interest rates, especially if inflation has come down sharply.

“It will be a close call between stagnation and a mild contraction, but the odds are tilted marginally in favor of the latter,” Dan Hanson, an analyst at Bloomberg Economics, wrote in a note published Monday. “The risks are that the fall in output is a little sharper than we have penciled in.”

Economists have predicted that GDP slipped 0.1% in the three months through September, a Bloomberg survey found as of Friday afternoon. The BOE expects unemployment, now 4.3%, to rise to 5.1% by 2026.

“With the labor market loosening, consumers may feel more cautious about spending,” Hanson said. “This is even as their real incomes continue to rise over the winter. The September money and credit data from the BOE points to households saving more than they have in the recent past.”

Hanson joins a handful of forecasters predicting a recession in the UK. Surveys have indicated a slump in output in the second half of the year and a sharp drop in job vacancies.

The model by Bloomberg Economics — which already has a mild recession in its forecasts — suggests a 70% probability of a contraction in the third quarter after a 0.6% fall in GDP in July and only a partial rebound in August. The Bank of England last week estimated a 50% chance of a recession in its forecast period.

Hanson said the prediction is based on a “model that uses high frequency data and historical experience to capture the distribution of risks around the near term outlook for growth.”

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