UK Economy Shrinks: Recession Looms as Growth Falters
The UK economy shrank by 0.1% in the third quarter of 2023, according to revised figures from the Office for National Statistics (ONS). This was worse than the initial estimate of zero growth and put the country at risk of a technical recession, which is defined as two consecutive quarters of negative growth.
The ONS said the downward revision was mainly due to weaker performances from smaller businesses, especially in the hospitality and IT sectors. It also said that some industries, such as film production, engineering and design, and telecommunications, were performing worse than previously thought.
The contraction in the third quarter followed a period of stagnation in the second quarter, when the economy saw zero growth. This means that the UK economy has been flat or shrinking for six months, raising concerns over its resilience and prospects.
The UK has been one of the weakest performers among the G7 countries since the start of the Covid-19 pandemic and has been struggling to recover from the impact of lockdowns, supply chain disruptions, labor shortages, and rising inflation.
The Bank of England has been raising interest rates to curb inflation, which reached 3.9% in November, well above the government’s 2% target. However, higher interest rates also make borrowing more expensive for consumers and businesses and can dampen economic activity.
The chancellor, Jeremy Hunt, said the revised figures did not reflect the “medium-term outlook” for the UK economy, which he said was “far more optimistic”. He pointed to the ONS’s revisions to past growth figures, which showed that the economy rebounded faster and stronger from the Covid lockdowns than previously thought and was 0.6% bigger at the end of 2021 than its pre-pandemic level.
He also said that the government’s measures in the Autumn Statement, such as the energy bill support scheme and the increase in public investment, would “deliver the largest boost to potential growth on record”.
However, the shadow chancellor, Rachel Reeves, said the prime minister had “failed to grow the economy” and accused him of breaking his promise to avoid a recession. She said the government’s policies were “hurting families and businesses” and called for a “change of course” to support jobs, wages, and living standards.
The ONS will release the figures for the fourth quarter of 2023 in February, which will reveal whether the UK has entered or avoided a recession. Some analysts have predicted that the economy will bounce back in the final three months of the year, helped by strong retail sales in November, which were boosted by Black Friday discounts.
However, others have warned that the recovery could be fragile and short-lived, as the economy faces new challenges from the Omicron variant of Covid-19, which has led to renewed restrictions and uncertainty in some parts of the world.
According to the International Monetary Fund (IMF), the UK is expected to grow by just 0.5% in 2023, the slowest among the G7 countries. The IMF also downgraded the UK’s prospects for 2024, estimating a growth rate of 0.6%, which would make it the slowest growing developed country next year.
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