Labour’s shadow chancellor Rachel Reeves has lambasted the government as the UK economy has officially entered a technical recession.
Gross domestic product (GDP) fell by 0.3% in the fourth quarter, following a decline of 0.1% in the previous three months, according to the Office for National Statistics figures released on Thursday morning.
Labour said the announcement shows the prime minister can “no longer credibly claim that his plan is working”, and that “Rishi Sunak’s promise to grow the economy is now in tatters”.
“This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain,” the shadow chancellor said. “It is time for a change. We need an election now to give the British people the chance to vote for a changed Labour Party that has a long-term plan for more jobs, more investment and cheaper bills. Only Labour has a plan to get Britain’s future back.”
Economists said the recession is likely to be short-lived, with GDP expected to pick up from the start of 2024. But the figures are damning for Mr Sunak, who has vowed to grow the economy as one of his five priorities.
Chancellor Jeremy Hunt said the contraction comes off the back of high inflation and the recent run of interest rate rises, but insisted the economy was turning a corner. He said it was the “right thing to do” to prioritise tackling inflation.
The Chancellor told broadcasters: “We always expected growth to be weaker while we prioritised tackling inflation, that means higher interest rates, and that is the right thing to do because you can’t have long-term healthy growth with high inflation.
“The underlying picture here is an economy that is more resilient than most people predicted, inflation is coming down, real wages have been going up now for six months.
“If we stick to our guns, independent forecasters say that by the early summer we could start to see interest rates falling and that will be a very important relief for families with mortgages.”
On Wednesday the prime minister had insisted the “economy has turned the corner” as he convened the first meeting of his 2024 Business Council.
Mr Sunak made the statement as data, also from the ONS, showed the inflation rate sticking at 4 per cent on the year in January, unchanged from December. Though double the Bank of England’s inflation target, it was better news than expected, after economists predicted an uptick to 4.2 per cent.
Mr Sunak said he was “unashamedly pro-business” as he spoke to chief executives in Downing Street on Wednesday morning.
Addressing the council, the prime minister said he was “determined” to “make the UK the best place in the world to start to grow and invest in businesses”.
The recession puts pressure on the government to reflect on its economic approach, as the Financial Times reported that Mr Hunt is still considering slashing billions of pounds from public spending plans to fund pre-election tax cuts. Mr Hunt is reportedly mulling over reducing projected spending rises to about 0.75 percentage points a year, releasing £5bn-£6bn for tax cuts.
Left-leaning think tank Institute for Public Policy Research said the economic recession should be a wake-up call for the government.
Rachel Reeves said Mr Sunak’s economic plan was in “tatters”
Pranesh Narayanan, research fellow at the Institute for Public Policy Research (IPPR) has said the figures underscore the need for public investment, rather than “irresponsible tax cuts”.
“This time last year, the Prime Minister pledged to get the economy growing but today’s data, showing a mild technical recession, shows a stark lack of progress,” Mr Narayana said. “Chronic underinvestment in hospitals, schools, net zero and infrastructure has created a crumbling public realm and a broken economy.
“This should be a wake-up call that spurs the Government to prioritise public investment rather than irresponsible tax cuts. Let’s fix our problems now rather than storing them up for later.”
Liberal democrat leader Ed Davey said that “Rishi’s recession” has “savaged the British economy by decimating growth and leaving families to cope with spiraling prices.”
Chancellor Jeremy Hunt is said to be considering further tax cuts as the economy enters a technical recession and public services face further squeezes
Official figures released on Wednesday show that UK Inflation has flatlined
