UK falls into recession as economy takes centre stage in runup to election

In what’s a blow for the governing Conservative Party forward of a normal election this yr, the Office for National Statistics estimated that financial exercise, as measured by gross home product, declined by 0.3 per cent within the fourth quarter of the yr from the earlier three-month interval. It mentioned all three most important sectors — providers, industrial manufacturing and building — have been down.

That was excess of the 0.1 per cent decline anticipated by economists.

The quarterly decline adopted a 0.1 per cent fall within the earlier three-month interval and highlights how the economic system has been hobbled by excessive rates of interest which were raised to cut back inflation.

A recession is formally outlined as two straight quarters of financial decline.

It is the primary time the British economic system has fallen into recession for the reason that first half of 2020, when output dived through the nation’s first COVID-19 lockdown.

Being in recession — nonetheless modest — is hardly the best backdrop for Prime Minister Rishi Sunak as he mulls when to name the election. Opinion polls present that his Conservative Party is closely trailing the principle opposition Labour Party.

Treasury chief Jeremy Hunt blamed excessive inflation for the weak point of the economic system, which has eaten into residing requirements.

“Low growth is not a surprise,” he mentioned. “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.”

In a finances assertion subsequent month, Hunt is predicted to attempt to flip the political momentum again for the Conservatives by reducing taxes, although with public funds stretched, authorities spending might must be trimmed too.

Rachel Reeves, who would substitute Hunt on the Treasury if Labour wins the election, sought to level the finger immediately at Sunak and “14 years of economic decline” beneath the Conservatives.

“This is Rishi’s recession and it is the British people who will pay the price,” she mentioned.

One of the principle the explanation why the economic system has stagnated is that the Bank of England has raised its most important rate of interest aggressively to a 16-year excessive of 5.25 per cent to get inflation all the way down to 4 per cent from a peak of over 11 per cent. Higher rates of interest assist cool the economic system by making it costlier to borrow, thereby bearing down on spending.

Though rates of interest seem to have peaked, the central financial institution has expressed warning about reducing rates of interest too quickly as decrease borrowing charges might bolster spending and put renewed upward strain on costs. As a consequence, borrowing prices are anticipated to remain excessive, relative to the previous 15 years or so, and progress muted, each time the election comes.

“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,” mentioned James Smith, analysis director on the Resolution Foundation assume tank.