It was certainly the last thing Rishi Sunak needed. No Prime Minister wants to go into an election with the R-word on their charge sheet.
The news hardly came as a surprise. We only escaped recession a year ago by the skin of our teeth. Yet while it meets the technical definition of a recession, where the economy shrinks for two successive quarters, it’s a pretty mild one.
Gross domestic product fell by 0.3 percent in the final three months of the year, following a tiny drop of 0.1 percent.
GDP growth statistics have a habit of being revised as more data comes in, so one day the recession could be magicked away as a statistical error.
The UK economy actually rose across 2023 as a whole, by 0.1 percent, but that’s nothing to boast about. However, 2023 is past. We’re in 2024 now, and just as the nights are getting shorter, the outlook is getting that bit brighter.
Today, we learned that retail sales jumped in January by 3.4 percent. That’s the largest monthly rise in three years.
It’s good to see Britons shopping again. The economy needs an injection of good old-fashioned retail therapy.
Consumer spending can vary from month-to-month due to variables such as Black Friday or a World Cup. But it suggests the doom and gloom has been overdone.
The cost-of-living crisis still isn’t over and higher interest rates are heaping pressure on mortgage borrowers. Yet the end is now in sight.
On Tuesday, we learned that unemployment had fallen to 3.8 percent in December, below the four percent predicted.
The numbers in work jumped by 72,000 to 33.17 million.
Wages are finally rising faster than inflation, too, at 5.8 percent to an average of £34,788 a year, comfortably above today’s four percent consumer price inflation (CPI) rate.
The worst of the energy shock is over, which hit the UK relatively hard because we import so much of our oil and gas.
Most forecasters reckon CPI will fall back to the Bank of England’s two percent target by April, when Ofgem cuts the energy price cap.
The cap is expected to fall by 14 percent to £1,660 a year, a saving of £268 on January’s £1,928, according to Cornwall Insight. That’ll help with bills.
When inflation falls back to target we’ll be in a different world and can start looking forward to the first interest rate cuts.
Mortgage rates will resume their slide and stock markets should rebound.
The EY ITEM Club expects the UK economy to grow 0.9 percent this year, with growth of 1.8 percent in 2025. Not brilliant, but definitely better.
That could be revised upwards, too.
Now it’s up to our politicians to implement the right policies to help the UK fly out of the traps.
Keir Starmer‘s Labour Party appears to have run out of ideas before it is elected.
Chancellor Jeremy Hunt has one last shot and should be aiming to cut taxes in his Budget on March 6. It sounds like he won’t, though.
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Hopes that Hunt might do something dramatic, such as cut 2p off income tax, appear to have been dashed following yesterday’s recession shock.
There is one clear and obvious way to get the economy motoring again, and it won’t cost the government a penny.
In fact, it will save us billions in debt servicing payments.
The Bank of England needs to wake up to reality and give us an interest rate cut at the first possible opportunity.
That’s the shot in arm the economy needs. Inflation, like the recession, is yesterday’s news.
The BoE needs to get ahead of the curve by cutting rates at its next meeting on March 21. Holding them at 5.25 percent again would be bordering on stupidity.
Unfortunately, stupidity is the BoE’s default setting.
Governor Andrew Bailey bears a large part of the blame for the recession as he ignored inflation warnings then raced to compensate by driving borrowing costs too high.
Now Bailey needs to take responsibility for getting the economy growing again, by cutting rates fast.
Avoiding another recession is not enough. We need to grow, grow, grow
