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UK in Recession

A shop-lined view of Manchester City Centre from the High Street
Author: Samuel Beckingham
Updated: Feb 21, 2024
4 minutes read

Official figures have shown that 2023 ended in a recession for the UK. Following a contraction between July and September, a shrinkage of 0.3% was experienced between October and December, officially marking the start of a recession.

Weak Growth

Throughout the whole of last year, the UK economy only grew by 0.1%. Discounting the years spent handling the Covid pandemic, this is the weakest growth experienced since 2009 in the fallout of the global financial crisis. Other countries around the world facing the same problem include Japan and swathes of our European neighbours, who are currently stagnating.

According to the Resolution Foundation, households are almost £1,500 worse off, and this is an accumulation of loss since before the cost of living crisis. The poor growth of the economy has not helped GDP per capita, which fell by 0.7% across 2023. Even worse is that this hasn’t grown since the beginning of 2022.

Analysis over the last 30 years has shown that GDP has only grown by 1.2% in the last 15 years, compared to 2.8% seen in the 15 years prior to this. With a growing population and a downturn in living standards, even a shallow recession isn’t likely to be good news.

Signs of a Shallow Recession

Despite the weak growth experienced last year, figures have revealed a sharp increase in retail sales for January. A 3.4% increase was found across all retail sectors (except clothing), far exceeding the anticipated 1.5% forecast. Such a sharp spike hasn’t been seen since April 2021. This means that retail sales could signal a short recession.

Retail sales for December 2023 were down 3.3%, which caused the Office for National Statistics (ONS) to downgrade its future estimates. However, the January spending spree has made up for this short dip as people have been making use of discounts and sales prices. Some analysts even believe the recession ended almost as soon as it began.

Inflation

With inflation having proved tough to tackle, the Bank of England had no choice but to raise interest rates. By squeezing household budgets and removing disposable income to quell spending, a recession was not unexpected.

There is always a delayed effect in how interest rate rises are felt because not everyone would have come to the end of their mortgage deal by the time the first, second or even third rise was announced. Remortgaging at a fixed rate has become more important to avoid volatile repayments, but thousands more households would have had to have gone through this pain in the last few years, removing essential funds from the economy.

Despite inflation falling (mostly due to the price of energy), households still have less available to spend. This does beg the question as to whether monetary policy works.

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