• Swindon & Wiltshire Economy
• Thursday February 15 2024
• Author Name: Peter Davison

UK tips into recession – business organisations react

The UK economy fell into recession at the end of last year, according to figures from the Office for National Statistics released today (Thursday).

The ONS said GDP fell by a larger than expected 0.3 per cent in the three months to December after a decline in all main sectors of the economy and collapse in retail sales in the run-up to Christmas.

It followed a drop of 0.1 per cent in the third quarter, fulfilling the technical definition of a recession – two consecutive quarters of economic decline. Growth in Q2 of 2023 was flat (0.0 per cent) and in Q1 was just 0.2 per cent.

The last recession in the UK was sparked by the pandemic in 2020. Before that, there was a recession in 2008 and 2009 caused by the financial crisis – at six per cent far deeper than the fractions of a per cent being experienced this year.

This recession seems to be driven in the larger part by a sharp fall in retail sales at the end of last year. Many experts expect this trend to reverse in 2024.

Chancellor Jeremy Hunt reacted by saying: “Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”

His shadow, Labour’s Rachel Reeves countered by saying: “Rishi Sunak’s promise to grow the economy is now in tatters. The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than fourteen years of economic decline.”

The news came at a bad time for the Conservative Party, as electors head to the polls in the Bristol suburb of Kingswood and in Wellingborough, Northamptonshire, to vote for new MPs in by-elections.

The UK’s largest business organisations were quick to react to the news from the ONS, and to demand action from the Government.

Reacting to the news, Alex Veitch, director of policy and insight at the British Chambers of Commerce, said: Businesses were already under no illusion about the difficulties they face, and this news will no doubt ring alarm bells for Government.

“The BCC’s last Quarterly Economic Forecast suggests annual growth below 1.0 per cent for the next two years as firms remained gripped by uncertainty and the twin perils of high inflation and interest rates remain.

“The Chancellor must use his Budget in just under three weeks’ time to set out a clear pathway for firms and the economy to grow.

“Businesses are crying out for a long-term economic plan that reduces the cost pressures they are facing and unlocks the investment they so sorely need.”

Martin McTague, national chair of the Federation of Small Businesses (FSB), said: “The news that we’re in a recession will just confirm what many small firms have been saying for some time now – it’s very tough out there.

“Our research found that confidence among small firms has been in negative territory for seven straight quarters, due to the energy price crisis and the knock-on impact on the cost of doing business.

“There are big differences between sectors, with the hospitality sector recording by far the gloomiest confidence score, underlining that economic pain and strain are far from equally spread out.

“Small firms are grappling with high interest rates, energy costs much greater than they were a couple of years ago, and weak consumer demand. Two in five small firms said their revenues decreased over the final quarter of last year, with only a third saying they increased, showing that the shine has definitely come off the so-called ‘golden quarter’, to small firms’ detriment.

“The Government needs to foster an environment where small firms can grow, to the overall benefit of the economy, and to put this period of stagnation and shrinkage behind us once and for all. We have set out an ambitious but achievable programme for small business growth at the forthcoming Budget.

“Uprating the Employment Allowance to keep it in line with recent raises in the National Living Wage, raising the VAT threshold from £85,000 to at least £100,000, bringing back tax-free shopping for overseas visitors, ensuring the future of the Recovery Loan Scheme to get funds to start-up and scale-up businesses, and bringing in a national Business Energy Advice Service to help small firms with eye-watering energy costs would all provide a launchpad for growth.

“Small firms have the drive and the potential to get the economy back up and running, and to put this period of economic decline firmly behind us.”

And Anna Leach, deputy chief economist at the CBI, which represents the UK’s largest businesses, said: “December’s GDP number suggests that the UK narrowly fell into a technical recession in the second half of the year. This brings to a close a pretty stagnant year for UK economic growth.

“The CBI’s most recent surveys suggest this year has started better than last year ended, with expectations for services and manufacturing in positive territory and the drag from higher interest rates expected to diminish.

“Better-than-expected real earnings growth will support consumers against the headwind of higher interest rates. But firms remain under pressure from higher borrowing costs, higher prices, weak demand and ongoing challenges recruiting the workers they need to grow and invest.

“There are multiple growth opportunities across the UK economy this year. As we head towards the Budget in March, we’re looking for action to support labour market participation and investment so that opportunities in high-growth industries like net zero can be fully realised.”