UK enters recession amid rising interest rates, inflation challenges

Economy

Published: 2024-02-15 19:38

Last Updated: 2024-04-16 13:09


UK enters recession amid rising interest rates, inflation challenges
UK enters recession amid rising interest rates, inflation challenges

The United Kingdom entering a recession during the latter half of last year, as rising interest rates and inflation exerted pressure on the financial resources of households and companies, official data revealed. 

This is expected to complicate matters for the conservatives ahead of the upcoming elections later this year.

The Gross Domestic Product (GDP) in Britain declined by 0.3 percent in the last quarter of last year, following a 0.1 percent decrease in the third quarter, according to figures released by the Office for National Statistics there today, Thursday.

Technical recession refers to an economic contraction recorded over two consecutive quarters. Throughout the entire year of 2023, the United Kingdom recorded a modest growth rate of 0.1 percent on an annual basis, after a growth of 4.3 percent in 2022, according to the Office for National Statistics.

The same source pointed out that this performance is the worst "since the financial crisis in 2009, excluding 2020" when the British economy was paralyzed for months due to the COVID-19 pandemic.

Chancellor of the Exchequer, Jeremy Hunt said, "Inflation is the biggest obstacle to growth, and that's why our priority was to halve it."

The inflation rate in the United Kingdom is 4 percent, which is twice the target set by the Bank of England, but it has significantly decreased compared to the peak recorded in October 2022, reaching 11 percent.

"With the Bank of England raising interest rates - currently at 5.25 percent - to reduce inflation, weak growth comes as no surprise," Hunt added. 

He confirmed that there are "indications that the British economy has overcome a tough period, with experts expecting growth in the coming years."

Ruth Gregory, an economic expert at the Institute for Fiscal Studies, considered that "the announcement of the United Kingdom entering a technical recession in 2023 will strike a blow to Prime Minister Rishi Sunak on a day he faces the possibility of losing two local elections."