UK economy at risk of recession despite November growth
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[January 12, 2024] By
David Milliken and William Schomberg
LONDON (Reuters) - Britain's economy grew slightly more strongly than
expected in November but remains at risk of slipping into a mild
recession, a potential blow for Prime Minister Rishi Sunak before an
election expected in 2024.
Gross domestic product (GDP) expanded by 0.3% after a fall of 0.3% in
October, slightly beating economists' forecasts for 0.2% growth in a
Reuters poll.
But output shrank by 0.2% in the three months to the end of November,
figures from the Office for National Statistics (ONS) showed on Friday,
more than the expected 0.1% fall.
A contraction or possibly even flat output in December could lead to a
second consecutive quarter of falling output, the ONS said. This would
place the economy in a shallow recession.
"It remains touch-and-go whether the economy tipped into a technical
recession in the second half of 2023," Investec economist Sandra
Horsfield said. "In either case, a better description of the trend might
be stagnation. The recession, if it did occur, looks to have been as
mild as they come."
Sterling was little changed against the U.S. dollar after the data, but
government bond yields fell as markets priced in a slightly higher
chance that the Bank of England (BoE) will begin to cut interest rates
in May.
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Britain's economy struggled to gain momentum in 2023, as households were
squeezed by rapid inflation and the highest BoE interest rates in 15
years.
EUROPEAN WEAKNESS
Economic output in November was only 0.2% higher than a year earlier and
has grown by just 2.5% since 2019.
Much of Europe's economy is weak too, due partly to the after-effects of
Russia's full-scale invasion of Ukraine in February 2022.
Germany's economy shrank in the third quarter, and data on Tuesday
showing an unexpectedly big drop in industrial output in November raised
recession fears in Europe's largest economy.
By contrast, the U.S. economy grew at an annualized rate of more than 5%
in the third quarter.
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People stand at Greenwich Park, with the Canary Wharf financial
district in the distance, in London, Britain, August 29, 2023.
REUTERS/Kevin Coombs/File Photo
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"The longer-term picture remains one of an economy that has shown
little growth over the last year," ONS chief economist Grant Fitzner
said after the British GDP numbers were published.
"GDP bounced back in the month of November, however, led by services
with retail, car leasing and computer games companies all having a
buoyant month."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics,
described it as a "coin toss" whether output would fall in the
fourth quarter.
While surveys have pointed to a further recovery of business
activity in December, renewed doctors' strikes would reduce
healthcare provision and retail sales looked patchy, he said.
HOPES FOR BETTER 2024
The government's Office for Budget Responsibility (OBR) has forecast
growth of 0.6% for 2023 and 0.7% for 2024 - a weak backdrop for the
national election that expected in the second half of 2024.
Some economists see more scope for a pick-up in growth this year
than the OBR or the even gloomier BoE. Inflation has dropped below
4% and mortgage rates have fallen as lenders expect the central bank
to cut borrowing costs later this year.
"The economy should shake off its torpor in 2024," Tombs said,
predicting wage growth and lower inflation and interest rates would
boost households' real disposable income by 2%.
Finance minister Jeremy Hunt, responding to Friday's data, said
inflation was still weighing on growth but the tax cuts for
businesses and workers he announced in November would boost
Britain's longer-term prospects.
Rachel Reeves, the opposition Labor Party's would-be finance
minister, said the weak growth meant Britain's overall tax burden as
a share of GDP remained the highest in 70 years.
(Reporting by David Milliken; editing by William James and Alex
Richardson)
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