In a potential setback to already beleaguered Prime Minister Rishi Sunak, Britain’s economy fell into a recession in the second half of 2023 ahead of the elections which are likely to the place in the second half of this year. Britain joins Japan among the Group of Seven advanced economies in a recession, although it is likely to be short-lived and shallow by historical standards. Canada has yet to report GDP data for the fourth quarter.
UK downturn
Gross domestic product (GDP) contracted by 0.3% in the three months to December, having shrunk by 0.1% between July and September, official data showed. The fourth-quarter contraction was deeper than all economists’ estimates in a Reuters poll, which had pointed to a 0.1% decline.
Sterling weakened against the dollar and the euro. Investors added to their bets on the Bank of England (BoE) cutting interest rates this year and businesses called for more help from the government in a budget plan due on March 6.
Britain’s economy stands just 1% higher than its level of late 2019, before the COVID-19 pandemic struck – with only Germany among G7 countries faring worse. British households are due to see their first drop in living standards between one national election and the next since the Second World War, analysts have said.
UK Elections ahead
Sunak has suggested he plans to call a UK general election in the fall, as he sought to silence growing calls from opposition parties for a vote in May. “My working assumption is we’ll have a general election in the second half of this year, and in the meantime I’ve got lots that I want to get on with,” Sunak told broadcasters on Thursday. Even so, he declined to rule out going to the polls in the spring,
In theory, Sunak can hold an election as late as January 2025, but most political observers expect it in the fall to allow as much time as possible for the Tories to try to close a gap of about 20 points to the opposition Labour Party.
Trailing so far behind Labour, Sunak is trying to calculate the best time to appeal to voters to extend the Tories’ 14 years in office.
Sunak’s troubles
The recession is bad news for Sunak who has promised to boost growth. Sunak promised to get the economy growing as one of his key pledges to voters last year. His Conservative Party has dominated British politics for much of the past seven decades, with a reputation for economic competence. But Labour is now more trusted with the economy, according to opinion polls.Ruth Gregory, deputy chief UK economist at Capital Economics, said the GDP figures had more political significance than economic, with voters due to elect lawmakers in two constituencies on Thursday. “The news that the UK slipped into technical recession in 2023 will be a blow for the prime minister on a day when he faces the prospect of losing two by-elections,” Gregory said.
Finance minister Jeremy Hunt is seeking to cut billions of pounds from public spending plans to fund pre-election tax cuts in his budget, if penned in by tight finances.
The prime minister — also a former chancellor — is trying to present himself as a sound steward of the economy after he helped restore a degree of stability following former premier Liz Truss’s disastrous seven-week premiership in 2022. A year ago, Sunak unveiled core promises including to halve inflation, bring down the national debt, and grow the economy. But so far it’s only on inflation that the goal has been met.
Labour leader Keir Starmer has said he plans to take the fight to Sunak’s Conservatives on the economy during the election campaign, saying his party had “turned the tables” on the Tories. Starmer said the Conservatives’ “boast” about tax cuts was contradicted by the fact that Britain’s tax burden has risen to the highest level since World War II on their watch.
Last month, Sunak barely survived a threat to his leadership when lawmakers the House of Commons voted to back legislation declaring Rwanda a safe country for asylum-seekers. But the victory came after two tense days of debate that exposed deep divisions within Sunak’s Conservative Party, having prompted a rebellion of around 60 of his lawmakers who tried unsuccessfully to toughen the legislation. The vivid display of disunity, nevertheless, has damaged Sunak’s authority, NYT wrote. It revealed a Conservative Party splintered into multiple rivalrous factions, with some lawmakers seemingly more intent on plotting their own futures than on uniting the party for a coming election against the opposition Labour Party, an NYT report said.
(With inputs from agencies)
