Behind the headline is extra dangerous information – GDP per head shrank by 0.7% in 2023 having fallen each quarter since early 2022 – the longest unbroken streak since comparable information started in 1955.
Let’s get the provisos out of the way in which first.
The indisputable fact that the UK is technically in recession adjustments nothing essentially.
The financial system had been performing weakly for a while. Gross home product – the broadest measure of how a lot revenue we’re all producing throughout the nation – had been basically flatlining since early 2022.
Defining a recession
The definition of a recession is considerably arbitrary anyway.
For some motive nobody can fairly bear in mind, economists alighted on the notion that when the financial system shrinks for 2 successive quarters, it constitutes a technical recession.
Imagine if we had learnt right now that the financial system had shrunk by 0.4% within the third quarter of final 12 months and had flatlined within the remaining quarter. That wouldn’t be a “technical recession” – though it could quantity to roughly the identical precise dent on financial exercise because the numbers really revealed by the Office for National Statistics right now – of a 0.1% fall in Q3 of 2023 adopted by a 0.3% fall in This fall.
Indeed, whereas this qualifies to be known as the “R phrase” underneath that definition, this might be the shallowest recession since 1956 – supplied development returns within the first quarter of this 12 months. And that is assuming one among these quarterly falls is not revised away altogether.
Which brings us to the ultimate proviso: these GDP figures are continuously revised – and infrequently revised upwards.
Back in 2012 many individuals had been fretting about the potential for a double dip and even triple dip recession. In the occasion, the ONS ultimately revised the numbers and there was no technical recession.
Money latest: What unexpectedly giant contraction means
‘We anticipated development to be weaker’
The political and financial difficulties
With all of that stated, there is no such thing as a escaping the difficulties of right now’s information for the prime minister and chancellor, each politically and economically.
To take the political first, Rishi Sunak promised to develop the financial system. He staked his popularity on it.
Now, whereas the financial system did (nearly) develop in 2023, it is essentially the most anaemic development possible: 0.1%. Indeed, that is the weakest 12 months for development for the reason that 2009 crash (save for the COVID lockdown-related falls in 2020).
And in one other sense, the financial system did not develop in any respect.
When economists need to get a way of how development actually feels throughout the financial system, they do not simply take a look at GDP, however at GDP per head – the quantity of financial output break up by the whole inhabitants. That adjusts for the rising inhabitants (essential in a rustic seeing file immigration flows) and offers you a greater benchmark of financial progress, and on this entrance the information is undeniably grim.
According to ONS estimates, GDP per head shrank by 0.7% in 2023. Not solely that, it has fallen each quarter since Q2 2022 – the longest unbroken streak of damaging GDP per head since comparable information started in 1955.
‘Not but at level to decrease rates of interest’
What’s occurring?
While the R phrase will undoubtedly dominate right now’s reporting, that is arguably much more essential. Which brings us to the deeper query: what’s actually occurring right here? Why has the financial system been flatlining (or, in GDP per head phrases, shrinking) since Q2 2022?
There are loads of discrete explanations. Some will level to Brexit, which has gummed up the wheels of commerce. Others will pinpoint the Bank of England, which has been elevating rates of interest to painful ranges, bearing down on family spending.
But there’s one thing else that is been occurring since 2022: the Russian invasion of Ukraine.
When that took place, it pushed fuel costs to file ranges throughout Europe. Energy prices went by means of the roof and for the reason that UK (like most of its European neighbours) is an enormous vitality importer and since vitality costs are embedded in just about each product, from tomatoes to paper to laptop chips, this nation has taken a major financial hit.
We are poorer than we had been earlier than – and that is one of many most important explanations for weak GDP.
None of that is to exculpate the prime minister and chancellor for the poor efficiency of the financial system not too long ago.
Not every thing might be blamed on Vladimir Putin. But it is price noting that almost all different European nations (and for that matter different large vitality importers like Japan) have confronted related pressures and seen equally weak GDP figures.
Britain is actually not alone.
All the identical, in an election 12 months, that is the information the prime minister may have dreaded above all else. Regardless of all of the provisos, what individuals will bear in mind about right now is the easy indisputable fact that Britain has slipped into recession.
They will ask themselves whether or not they really feel higher off than they did final 12 months or the 12 months earlier than and the reply – statistically – is not any.
