Why a recession does matter – and not just for Rishi Sunak’s career
After months of debates around whether the UK would or would not fall into a recession, we finally have an answer – it did.
Figures out this morning showed that output shrunk 0.3 per cent in the final quarter which followed a 0.1 per cent contraction the quarter before. This meets the definition of a recession.
However, this means there’s a new debate to be had: does it matter?
A number of economists have tried to downplay the recession tag, labelling it a ‘technical recession’. The argument is that the UK may have met the technical criteria to be in a recession, but households have not suffered that much since output has not dropped far and unemployment remains low.
The other argument that the UK’s 2023 recession does not matter is that things are already on the up.
GDP data is, by its nature, backward looking. Survey data from January points to a much rosier picture. Throw in falling inflation, interest rate cuts and rising wages then you have all the conditions for the UK to rebound strongly in 2024.
Perhaps unsurprisingly this is the line taken by the Conservatives under Rishi Sunak, who after all promised that they would grow the economy.
“There are signs the British economy is turning a corner,” Jeremy Hunt said following the publication of the figures. “Forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low,” he reassured.
It may be true that better times are coming, but it does not take away from the fact this should not be seen as just a technical recession.
Why?
Well, GDP per head, a good proxy for living standards, is not improving.
In fact its getting worse.
Over 2023 as a whole, GDP per head fell by 0.7 per cent. It has not increased since the beginning of 2022, the longest run without improvement since 1955.
What GDP growth there has been since then simply captures the fact that the population is larger. Few would argue this points to a fundamentally healthy economy.
And what about the impact on living standards? According to the Resolution Foundation, GDP per capita was 4.2 per cent off its pre-cost-of-living path by the end of 2023 costing households nearly £1,500.
As Torsten Bell, chief executive of the Resolution Foundation said on X, “this is a proper recession just being hidden by having more people”.