Britain in recession, another blow to Rishi Sunak’s economic pledges

Britain is set to slip into a mild recession in the second half of 2023, showing that Prime Minister Rishi Sunak has so far failed to deliver on his promise to grow the economy. Data released Thursday from the Office for National Statistics showed gross domestic product fell 0.3% in the fourth quarter, more than economists’ forecast of a 0.1% decline. That followed a 0.1% decline, unchanged from the past three months, meeting economists’ technical definition of a recession, or two consecutive quarters of contraction. The economy still grew by 0.1% for the year, making it the slowest annual expansion seen in the UK since 2009, excluding the first year of the pandemic. Britain’s economy last recorded a quarter of growth in the first three months of last year.

UK bonds rose for a second day, with 10-year yields nearing a two-month high of 4.2% and falling below 4% for the first time in a week. Currency markets stepped up bets on the scope for monetary-policy easing this year, fully pricing in three quarter-point cuts and a 10% chance of a fourth, with the first cut expected by August. The pound slipped 0.2% against the dollar to $1.2542, set for a third day of losses. Although widely anticipated, there is evidence that the Bank of England’s campaign to reduce inflation has had an impact. The figures come at a particularly bad time for Sunak, as voters head to the polls in two parliamentary constituencies in England – the latest test of the opposition Labor Party’s strength ahead of a general election later this year. .

Sunak made the economy one of five key pledges after taking office in October 2022, along with cutting the debt, halving inflation, reducing health care waiting lists and stopping boat migration across the English Channel. So far, he can only claim victory on his pledge to slow price rises, over which the bank has far more influence than the government.