Faisal Islam on the UK’s Economic Health: Is the Recession Significant?
Britain has officially entered a recession, as its Gross Domestic Product (GDP) experienced a sharper-than-expected 0.3% decline in the last quarter of 2023. This marks two consecutive quarters of contraction, following a 0.1% decrease between July and September 2023. The widely used rule of thumb for a recession involves two consecutive quarters of economic decline, and the recent figures indicate a period of “zero growth” or “stagnation” over the past six months and the last two years.
The economic downturn raises concerns and prospects for improvement appear limited in the coming year. Prime Minister Boris Johnson had set a vague target for economic growth by the end of the previous year. The global definition of a recession varies, with the US relying on a committee of private economists to determine “a significant decline in economic activity spread across the economy and lasting more than a few months.” Under the US definition, the UK’s situation might not necessarily qualify as a recession due to the strength of the jobs market.
The conventional definition of a recession as two consecutive quarters of economic decline has historical origins traced back to economist Art Okun’s suggestion in 1967 to US President Lyndon B Johnson. This definition, considered by some as “barmy,” has persisted globally, except in North America. Despite its historical origins, the two-quarter definition has been widely adopted.
In his Budget speech last year, Chancellor Jeremy Hunt assured MPs that the UK would not enter a technical recession. However, the recent data indicating two consecutive negative quarters means the “R-word” will be used in economic discussions. While this downturn may be considered a relatively mild outcome considering the challenges faced, it underscores a more significant issue – the UK economy is not growing. The “nano-recession” will be closely monitored, providing insights into the economic landscape amid health crises, energy shocks, and shifting interest rates.
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