In the end it wasn’t really that close. The UK economy is now technically in recession after contracting by 0.3% in the final three months of 2023.
The official data brings to an end a miserable year for the UK. Growth in 2023 as a whole was just 0.1% – the weakest performance outside the Covid pandemic year of 2020 since 2009.
In one sense, there is no comparison between 2009 and 2023. The former was a severe recession, with output declining by about 6% over a protracted period. In 2023 the economy had essentially stagnated: growing by 0.2% in the first quarter, remaining unchanged in the second quarter and then shrinking slightly in the second half of the year.
That said, even a technical recession is a headache for Rishi Sunak, who made growing the economy one of his five new-year pledges at the start of 2023. As the shadow chancellor, Rachel Reeves, was quick to point out, the prime minister has failed to deliver on that promise.
What’s more, the economy showed across-the-board weakness in the fourth quarter, with all three main sectors – services, manufacturing and construction – going backwards.
There was also evidence that households had been cutting back on their spending as a result of cost of living pressures and the squeeze from higher interest rates. Consumer-facing services fell by 0.7% in the final three months of the year, largely as a result of people spending less in the shops and going out in the run-up to Christmas.
Governments facing the prospect of a general election always want to generate a feelgood factor before polling day. Britain, in the last three months of 2023, had the opposite: a feel-bad factor.
The picture would have been even worse had it not been for a rising population. Gross domestic product per head of population has not risen for seven straight quarters (six falls, one quarter unchanged) stretching back to early 2022.
Jeremy Hunt put a brave face on what was clearly unwelcome news for a government facing two byelections on Thursday. The economy was “turning a corner”, the chancellor said, and forecasters were predicting stronger growth over the coming years.
Hunt may well be right. The worst for the economy is now probably over. Business and consumer confidence are picking up a bit. The housing market is showing signs of stabilising. The City is expecting the Bank of England to start cutting interest rates by the middle of the year.
Ultimately, it makes little difference whether the economy is moving sideways or contracting marginally, particularly since revisions in the future may well show the UK was not in recession after all.
But it would have certainly been politically helpful to Sunak and Hunt had the UK emulated the eurozone and narrowly avoided a recession in late 2023. The fact that it did not puts added pressure on the chancellor to come up with some “feel better” measures in the budget on 6 March.
