Great Britain is slipping into recession

The British economy has been in recession since the end of last year. Economists expect the economic crisis to continue for the time being. This makes an imminent change of government in the country even more likely.

Given high interest rates and inflation, the British economy slipped into recession at the end of the year. The gross domestic product shrank by 0.3 percent from October to December compared to the previous quarter, as the ONS statistics office announced today in London. In the previous third quarter it had already fallen by 0.1 percent.

Biggest minus since 2021

Economists speak of a technical recession if there are two consecutive quarters of shrinking economic output. The loss in the fourth quarter was the largest 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.

In 2023 as a whole, there was still enough mini-growth of 0.1 percent. The Bank of England expects a slight recovery in 2024: GDP should then rise by around 0.25 percent.

Many economists, on the other hand, expect the economic crisis to continue: “We continue to assume that the United Kingdom will remain in a slight recession over the next three quarters,” write analysts at major bank UniCredit. The savings of private households from the Corona period have been used up and the financing costs are high. The job market is under pressure.

Height Investment costs slow down the economy

The main 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. However, 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.

As the statistics office also announced, economic performance developed weaker in December than in the previous month. A decline of 0.1 percent was reported for December. In addition, GDP developed somewhat weaker in November than previously known. The increase was revised downwards to just 0.2 percent, after previously reporting an increase of 0.3 percent. Unlike other countries such as Germany, Great Britain also publishes monthly data on economic performance.

However, the country’s industrial production was surprisingly strong. Production rose by 0.6 percent month-on-month in December, the statistics office also announced.

Problem for Tories in the election campaign

For Prime Minister Rishi Sunak, the economic downturn is a setback in the election year. After all, he had promised to stimulate the economy. Finance Minister Jeremy Hunt said the figures were no surprise. But the country is on the right track, the government will stick to its plan and continue to cut taxes and fight inflation.

“There are signs that the UK economy is experiencing a turnaround,” Hunt said. Wages are likely to rise faster than prices in the future. In addition, taxes on labor and companies must be reduced “in order to build a stronger economy.” According to media reports, Hunt wants to save billions in spending in order to finance the tax cuts.

Great Britain is electing a new parliament this year. The opposition Labor Party is well ahead of the Tories in all surveys and therefore has a good chance of becoming the head of government in the future. She criticized the recession as the result of 14 years of chaotic conservative politics.