The British economy has slipped into recession due to high interest rates and inflation. The gross domestic product shrank by 0.3 percent from October to December compared to the previous quarter, as the ONS statistics office announced on Thursday in London. This is the biggest loss since the beginning of 2021, when new corona restrictions stalled the economy.
Economists surveyed by the Reuters news agency had only expected a decline of 0.1 percent, after a decline of 0.1 percent in the previous quarter. Two consecutive negative quarters are referred to as a technical recession. In 2023 as a whole, there was still enough mini-growth of 0.1 percent. The Bank of England expects only a slight recovery in 2024: Then it should be an increase of around 0.25 percent.
The lull is not good news for Prime Minister Rishi Sunak. Parliamentary elections are due in 2024. According to surveys, the opposition Labor Party has a good chance of becoming head of government in the future. “There are signs that the British economy is experiencing a turnaround,” said Finance Minister Jeremy Hunt optimistically. Wages are likely to rise faster than prices in the future. Taxes on labor and companies must be reduced “to build a stronger economy.” According to media reports, Hunt wants to save billions in spending in order to finance tax cuts.
Many economists expect the economic crisis to continue. “We continue to expect the UK to remain in a mild recession over the next three quarters,” wrote analysts at Unicredit. Private households’ savings from the Corona period have been used up, financing costs are high and the labor market is under pressure.
One reason for the recession is high inflation. The inflation rate is currently four percent, twice as high as the central bank’s target. This dampens the purchasing power of consumers. In order to reduce inflation, the Bank of England has increased its interest rates sharply. This makes investments more expensive, for example in buildings and machines. According to the statistics office, industry, construction and wholesale contributed most to the weak performance in the fourth quarter.