Official figures have confirmed that the UK economy entered recession at the end of last year, after the latest estimate found it contracted in the final two quarters of 2023.
In a blow to the government's economic position, the Office for National Statistics (ONS) said the economy, as measured by gross domestic product, contracted 0.3% in the final three months of the year, with no revision from a previous estimate.
A 0.1% contraction followed in the third quarter of 2023, confirming a technical recession โ two consecutive quarters of negative growth.
As he prepares for a general election, Rishi Sunak has been trying to reassure Conservative MPs that the economy is improving, after business surveys showed a recovery in private sector activity in the first months of the year.
TO sharp drop in inflation In recent months, the Bank of England is expected to begin cutting interest rates this summer, easing pressure on mortgage payers and indebted businesses.
However, one of the nine members of the Bank's monetary policy committee (MPC), which sets interest rates eight times a year, said on Thursday that cuts "were a long way off", discouraging speculation that several would be needed. reductions in the cost of debt. place this year.
Speaking to the Financial Times, Jonathan Haskel said: โWhile the drop in headline inflation is very good news, it doesn't tell us what we really care about: what we really care about is persistent, underlying inflation. โI think the cuts are too far away.โ
The consumer price index (CPI) fell from 4% in January to 3.4% in February. The decline was primarily due to slowing growth in energy and food prices. Inflation in the services sector remained above 5%.
Haskel said he was concerned about the high level of wage growth. He added that interest rates should remain high until there is evidence that wage growth has stabilized at a lower level.
Bank Governor Andrew Bailey said last week that Interest rate cuts were โon the cardsโadding that he was increasingly confident inflation was heading towards Threadneedle Street's 2% target after peaking at 11.1% in October 2022.
Financial markets expect rate cuts of at least three-quarters of a point this year.
The ONS said the latest GDP estimate for the final quarter of 2023 showed all three sectors of the economy - services, manufacturing and construction - experienced a fall in output. The figures indicate that a deeper recession was avoided by an increase in public spending.
Services fell a softer 0.1%, compared with a 0.2% fall in the first estimate, but without making a difference to the overall decline in the wider economy, the ONS said.
British trade declined and household consumption also fell despite a drop in inflation towards the end of 2023.
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The ONS said retail sales had the biggest monthly fall in December since January 2021, when Covid-19 restrictions were in place.
Ashley Webb, British economist at the consulting firm Capital Economic Sciencessaid: "The mild technical recession the UK suffered at the end of last year was as mild as previously thought and the economic recovery is probably already underway."
He said the firm's forecast for the economic recovery in 2024 and 2025 was that it would be stronger than the Bank of England expects.
The company has forecast that inflation will fall more than the Bank predicts and that interest rates will fall faster and further than current market prices suggest.
Shadow chancellor Rachel Reeves said the ONS figures showed Sunak had โbroken his promise to grow the economy and left Britain in recession with workers paying the price. โConservatives cannot claim that his plan is working or that they have overcome more than 14 years of economic failure.โ
Chancellor Jeremy Hunt said last year was โdifficultโ after interest rates were kept high to reduce inflation, but added: โWe can see our plan is working. Inflation has fallen decisively from over 11% to 3.4%, the economy grew in January and real wages have risen for eight consecutive months.
โOur cuts to national insurance will boost growth by rewarding work and putting more than ยฃ900 a year back into the pockets of the average earner.โ
