A week is a long time in politics for Sunak and the Tories

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UK prime minister Rishi Sunak has suffered one of the worst weeks of his premiership with data confirming he had led the country into recession followed by the loss of two safe seats in parliamentary by-elections.

The opposition Labour party proved that its high opinion poll ratings could be translated into actual votes at the ballot box as it snatched the seats in Wellingborough in Northamptonshire and Kingswood near Bristol. There were also growing signs that the Conservatives are losing votes on the right to the populist Reform UK party.

Last night’s results cap a challenging few days for the Tories, who had spent yesterday fighting accusations that they were responsible for tipping the UK into a recession. GDP data showed the economy shrinking 0.3 per cent in the final quarter of 2023 following a decline of 0.1 per cent in the third. 

Some economists argue the dip is only a “technical” recession — defined as two successive quarters of negative growth — in comparison with the more serious downturns in the past featuring mass unemployment. The argument that growth was now returning was also given credence by this morning’s positive retail sales figures for January, suggesting the economy was picking up momentum. There was also more positive data earlier in the week showing inflation holding steady at 4 per cent, lower than analysts had expected.

This was however drowned out by the political furore around the GDP figures, given the fact that Sunak had made restoring growth one of his key promises to voters. Instead, said Labour shadow chancellor Rachel Reeves, we now had “Rishi’s recession”.  

GDP per capita was gloomier still. An increase in population would normally lead to higher growth: instead the fall in output per head of 0.7 per cent in 2023 was the first contraction since the financial crisis, barring the pandemic emergency of 2020.

The string of data comes as Chancellor Jeremy Hunt prepares for a crucial Budget on March 6, possibly the last big chance to turn around Tory fortunes before a general election expected before the end of the year.

The FT revealed earlier this week that Hunt was considering another squeeze on public spending to pay for tax cuts but a new set of internal fiscal forecasts showed he has little room for manoeuvre. Economists have warned that Hunt’s planned 1 per cent real terms annual increase in public spending through to 2029 is a “fiction” that would seriously damage already stretched public services.

Back in the world of politics, the GDP figures are welcome news for the Labour party, which has suffered its own week of dire headlines, or as one of its officials commented: “To have people talking about recession in an election year isn’t good for Rishi Sunak. His selling point was supposed to be that he knew how to run the economy.”  

Need to know: UK and Europe economy

Brussels has downgraded forecasts for EU and eurozone growth this year to 0.9 per cent and 0.8 per cent respectively, but has also revised lower inflation expectations as energy and other commodity prices fall faster than expected. European Central Bank chief Christine Lagarde pushed back against suggestions interest rate cuts were imminent.

Germany’s withdrawal of support for a piece of EU legislation that it had long appeared to back, the new supply chain law, is the latest incident causing frustration among other member states at Olaf Scholz’s unpredictable governing coalition.

European comment editor Tony Barber says gains for the hard right in June’s European parliamentary elections could disrupt EU climate, migration and trade policies.

Need to know: global economy

Economic growth in Africa slowed to 3.2 per cent in 2023 from 4.1 per cent the year before because of “multiple shocks” and increasing global economic uncertainty, the African Development Bank said. For this year the AfDB forecasts growth of 3.8 per cent and 4.2 per cent for 2025.

Australia classified nickel, crucial for electric vehicle batteries, as a “critical” mineral, eligible for government funds, to support an industry hit hard by a flood of cheap nickel from Indonesia.

Hedge funds have piled into the cocoa market, exacerbating a surge in prices sparked by poor harvests in West Africa. Their bet, which has already earned bumper profits for trend-following hedge funds, helped drive the London price to a record close of £4,757 per ton last week.

Japan’s economy joined the UK in contracting for a second straight quarter on weak domestic demand, adding to pressure on the Bank of Japan as it considers raising interest rates for the first time since 2007.

Prabowo Subianto, Indonesia’s likely new president, first ran for office as a military hardliner but has morphed into a more benign grandfatherly figure. He is expected to pursue a populist path that could test the country’s fiscal strength.

Need to know: business

JPMorgan and State Street, two of the world’s biggest asset managers, are quitting a climate investor group, while BlackRock, the world’s largest money manager, is downsizing its commitment, reflecting a green backlash from US Republicans and others.

Business is also under pressure from the opposite political direction: a Cambridge-led coalition of UK universities has warned banks and asset managers they are prepared to shift billions of pounds into greener institutions unless the financial providers accelerate net zero plans and stop financing new fossil fuel projects.

Longi Green Energy Technology, the world’s biggest solar panel manufacturer, warned Europe and the US not to restrict Chinese companies from their renewable energy supply chains if they were serious about transitioning away from fossil fuels.

Just six weeks after a private equity rescue was completed, The Body Shop’s international network has been dismantled, its crown jewel, the UK business, has collapsed into administration, and then-chief executive Ian Bickley has departed. Here’s how it happened.

Calstrs, the US pension giant, said private equity needed to share more wealth with the workers of the companies it takes over. Columnist Gillian Tett says the industry ignores protests at its peril.

A Big Read investigates whether OpenAI, one of the fastest growing companies in history, can create superintelligence before it runs out of cash.

Science round up

A new satellite mission, set to launch next month aboard a SpaceX rocket, aims to track planet-warming emissions of methane gas to help build a global map of oil and gas infrastructure and monitor it for leaks.

A campaign to plant trees across Africa will not only damage ancient grassland ecosystems that absorb carbon dioxide but also fail to fully restore depleted forests, according to a new report. The study will intensify debate on whether global tree-growing projects backed by western governments and philanthropists will help mitigate climate change and other environmental damage.

In the largest analysis of its kind to date, researchers have found that blood proteins can predict dementia up to 15 years before clinical diagnosis. It bolsters the findings of smaller studies suggesting certain proteins are “biomarkers” of susceptibility to Alzheimer’s and other neurodegenerative diseases.

Scientists have invented a breakthrough antibiotic that successfully combats “superbugs” in non-human tests. Cresomycin was found to be effective in mice against several bacteria that cause serious infections and are increasingly resilient to drugs used to kill them.

Brussels told the UK it must ease visa procedures and costs for scientists or risk missing out on the full benefits of the Horizon Europe research programme. The tensions threaten UK efforts to restore the prominent role it had in Horizon before it dropped out for three years.

Scientists are still grappling with the puzzle of what causes long Covid and how it could be treated. The disease is defined as the continuation or development of symptoms three months after initial infection with Sars-Cov-2, with these symptoms lasting for at least two months.

Some good news

The reconstructed spire of Paris’s Notre-Dame cathedral, damaged in the devastating fire of 2019, can now be seen after scaffolding was removed following almost five years of reconstruction.