2024-02-16 08:12:37
Bad news for our neighbors on the other side of the Channel. The United Kingdom fell into technical recession in the second half of 2023. GDP actually fell by 0.3% in the fourth quarter, according to the National Statistics Office (ONS), INSEE British, following having already fallen by 0.1% in the previous three months. As a result, over the full year, growth only reached a meager 0.1%. Which is to say nothing at all.
If we except the year 2020 marked by Covid and confinements, 2023 is, on an economic level, the worst since 2009, the year following that of the great financial crisis. The United Kingdom’s economic activity was of course affected last year by the inflationary crisis. Household consumption only increased by 0.4% in 2023, as rising prices reduced the purchasing power of the British.
Low consumption
This weakness in demand has had an impact on company sales. Especially since the increase in interest rates decided by the Bank of England has weighed on construction, with significantly fewer buyers of new homes being able to afford what they want. Activity in the sector decreased by 1.3% over the last three months of the year.
Industrial production fell by 0.3% in 2023, and the movement accelerated at the end of the year. Ten of the thirteen industrial sectors recorded by the ONS saw their activity decline in the fourth quarter. Similarly, exports have fallen.
A very restrictive monetary policy
It is therefore not certain that the International Monetary Fund (IMF) forecast of growth of 0.6% in 2024 can be achieved. The hope is that purchasing power will rise once more. In January, inflation was still at 4.2% over one year, a level higher than in the euro zone.
But since the economy appears more depressed than expected, the rise in prices should slow down in the coming months. Some economists even expect it to fall below 2% this summer. However, in the fourth quarter, workers’ remuneration increased by 5.8% year-on-year, which allowed British households to find a little oxygen, that is to say, money to consume.
It remains to be seen whether they will spend it. Benjamin Nabarro, economist at Citi, expects growth to pick up slowly. It expects GDP to grow by 0.1% to 0.2% per quarter during the first half of 2024.
The problem posed by the British underperformance at the end of 2023 is that of the level of interest rates. The Bank of England maintained its key rate at 5.25% at its last monetary policy meeting. “With the greater drop in GDP and the technical recession, the situation will become very uncomfortable for the Bank of England, especially with such a restrictive monetary policy,” said Sanjay Raja, economist at Deutsche Bank.
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