LONDON, February 15, 2020 (Xinhua) — The British economy has entered a recession after two consecutive quarters of economic contraction during the second half of 2023, according to official data published on Thursday. The bank is expected to perform better this year despite the pressures as borrowing costs remain high
The Office for National Statistics said in a report that Britain’s gross domestic product fell by 0.3 percent in the fourth quarter of 2023, after falling by 0.1 percent in the previous quarter.
All three major sectors fell between October and December, according to the Office for National Statistics. Services decreased by 0.2 percent, production contracted by 1.0 percent, and the construction sector decreased by 1.3 percent.
Liz McKeown, director of economic statistics at the Office for National Statistics, said manufacturing, construction and wholesale sales were the biggest barriers to growth, partly offset by increases in the hospitality sector and vehicle and machinery rentals.
The Office for National Statistics added that the UK’s GDP is expected to expand by 0.1 percent in 2023, after growth of 4.3 percent in 2022, which will be the weakest since the 2009 financial crisis, with the exception of 2020 affected by the pandemic.
“Upward revisions are likely over time,” said Sanjay Raja, chief UK economist at Deutsche Bank. “However, for now, the negative impact of Q4 2023 GDP would mechanically subtract approximately 0.2 percentage points from growth expectations.” “GDP for 2024. This is critical.” .
The UK has suffered from economic recession and high inflation for almost the past two years. Families have felt the pressure amid the cost of living crisis. Mass strikes broke out during the summer of 2022. Disputes over wages continue.
“High inflation is the single most important drag on growth, which is why halving it was our top priority,” Treasury Secretary Jeremy Hunt said on Thursday.
Hunt added: “As long as interest rates are raised, so that the Bank of England can reduce inflation, the decline in growth is not surprising.”
In order to systematically combat high inflation, the British central bank kept the reference interest rate at its highest level in almost 16 years, at 5.25 percent. Because borrowing costs have remained high for some time, they are expected to weaken economic growth.
The monetary institution estimated in a report issued in early February that a gradual recovery in the economy is expected, largely reflecting easing pressure on the growth rate derived from previous interest rate hikes. Inflation is expected to temporarily decline to the 2% target in the second quarter of 2024 before rising again in the second half of this year.
The Bank of England said in the report that monetary policy would need to “remain tight for a sufficient period” to return inflation to the sustainable target of 2 percent over the medium term, in line with the central bank’s mandate.
Victoria Clarke, chief economist at Santander CIB in the UK, said: “The Bank of England may face greater external pressure to cut interest rates in the wake of recession news.”
Elizabeth Martins, chief economist at HSBC, said that since the UK ends 2023 in recession, this will generate some headlines and some political interest and so “growing the economy” is one of the government’s goals.
Looking forward to 2024, the UK economy is expected to perform slightly better. Martins said the news for 2024 has been more positive so far, with real wages rising, lower mortgage rates on offer and house prices, and a rebound in PMI and consumer confidence.
“We don’t expect a boom in 2024, but a better year than the last is certainly not much to expect,” Martins added.
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