The United Kingdom, UK, economy has fallen into recession. It went into recession in the final three months of last year, according to official figures, after the economy contracted more than expected.
Gross domestic product, GDP, a key indicator of economic activity, fell by 0.3% between October and December.
This follows a fall between July and September. If the UK’s GDP falls for two consecutive three-month periods, the country is considered in recession.
This figure will be a blow.
Growing the economy was one of five promises he made in January 2023. Meanwhile, Chancellor Jeremy Hunt is less than three weeks away from presenting his latest budget.
Shadow chancellor Rachel Reeves said the data showed Mr Sunak‘s pledge to boost the economy was “in tatters.”
The government can use rising GDP to demonstrate that it is doing a good job of managing the economy. Similarly, if GDP falls, opposition politicians accuse the government of mismanaging the economy.
When GDP grows steadily, people pay more in taxes because they earn and spend more. This means the government has more money to spend on public services like schools, police, and hospitals.
Governments also like to monitor how much they borrow in comparison to the size of the economy.
Treasury sources confirmed to BBC News that the chancellor is considering a larger pencilled-in squeeze on public spending as a way to deliver tax cuts in the Budget on 6 March.
Forecasts for the public finances have materially deteriorated in recent weeks as interest costs on UK government borrowing has increased. Final decisions have not been made.
Mr Hunt commented on GDP, saying, “Low growth is not surprising given that interest rates are high and the Bank of England can bring inflation down.”
He also stated that there were “signs the British economy is turning a corner”.
However, Mr Reeves stated: “This is Rishi Sunak’s recession, and the news will be deeply concerning for families and businesses across Britain.”
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Figures from the Office for National Statistics indicates that there was a slowdown in all of the major sectors it measures to determine the health of the economy, including construction and manufacturing, in the final three months of 2018.
The figure for the final three months of last year was lower than the 0.1% drop widely expected by financial markets and economists.
The GDP for the third quarter, between July and September fell by 0.1%.
Ruth Gregory, Capital Economics’ deputy chief UK economist, said the latest economic data “might nudge the Bank of England a little closer to cutting interest rates.”
“But we doubt the Bank will be overly concerned about what is expected to be a mild and brief recession,” she added.
Recent figures shows that inflation remained at 4% in January.
The Bank of England had been raising interest rates to slow inflation, but they have remained at 5.25% since August last year.
The economy grew by 0.1% overall this year.
“While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat,” said Liz McKeown, director of economic statistics at the ONS.
Nevertheless, excluding the Covid years, annual growth last year was the weakest since 2009 when the UK and major economies were reeling from the global financial crisis.
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