Fittingly, a forgettable year for the economy ended on a downbeat note, with the last set of official data for 2023 showing the UK uneasily perched on the brink of recession.
That should come as little real surprise. Higher interest rates from the Bank of England were meant to hurt – and they are. Borrowing costs were raised 14 times between December 2021 and August 2023 in successive jumps and there were fears back in the summer that they might go still higher.
Consumers responded in predictable fashion. They tightened their belts by spending less and saving more. A breakdown of the growth (gross domestic product, or GDP) figures for the third quarter of 2023 shows consumer spending down by 0.5%, while the savings ratio (the percentage of household disposable income saved) rose from 9.5% to 10.1%.
Business investment, which had been showing signs of recovery, also fell – by 3.2% – in the third quarter, although this may have had more to do with spending on new plant and machinery being brought forward to beat the April 2023 deadline for the end of the government’s superdeduction tax break.
The upshot is that the Office for National Statistics now estimates that the economy contracted by 0.1% in the three months to September rather than showing no growth. It also revised down growth in the second quarter from 0.2% to zero.
Given that the fourth quarter started with a 0.3% decline in October, the warning signs are clearly there. A technical recession is where GDP falls for two consecutive quarters – and the UK is perilously close to meeting that definition.
Whether or not a recession materialises, the bigger picture is that since growing by 0.5% in the first quarter of 2022 the economy has gone nowhere. In the second and fourth quarters of 2022 it grew by 0.1%; in the third quarter it fell by 0.1%. Growth of 0.3% in the first three months of 2023 has been followed by the weakness in the second and third quarters.
The GDP figures are bad news for Rishi Sunak. At the start of 2023, one of the prime minister’s five pledges was that he would have the economy growing by the end of the year. That pledge has not been met, and it will be of little comfort to the prime minister that other European countries are also recession candidates.
There was some tiny crumb of comfort for the government to take from the 1.3% month-on-month retail sales growth in November, which suggests that falling inflation is boosting spending power and making consumers feel more confident.
But governments like to see signs of a booming economy when a general election is looming, and the UK is not booming. Far from it.
