The United Kingdom could have been the first Western economy to fall into a recession. "Luckily", their GDP stagnated instead.
Despite narrowly avoiding recession, the United Kingdom economy is confirmed to be the worst in the Western world. On Friday, economic data concerning the UK’s inflation and GDP came out, underlining the country’s lag behind other developed economies.
British GDP miraculously grew by 0.1% in the first quarter of 2023, meeting expectations and dodging a possible early recession. If the UK continues on this sluggish path, they might avoid recession in 2023 ending with a 0.5% GDP annual growth.
However, it should be noted that British GDP actually decreased by 0.3% in March, possibly setting the conditions for a downturn during this quarter. The UK’s position is still incredibly fragile and it is impossible to make accurate predictions.
The UK is the only G7 member that has not rebounded to pre-Covid levels yet. According to today’s data, its GDP is still 0.5% lower than at the end of 2019. By comparison, Italy’s economy is 2.4% bigger than pre-Covid levels, and the United States’ is by 5.3%.
UK’s stagnation has its roots in Brexit: severing off from the country’s largest trading partner prevented London from retaining its financial status.
Furthermore, the Bank of England was forced to raise interest rates once more, bringing the UK ever closer to recession.
Inflation and political inaction
Like essentially every other economic statistics, the UK has a worse inflationary level than the rest of the developed world.
British inflation is at 10%, still higher than the US’ inflationary peak of 9% last June. While overall European inflation is high (6.9% for the EU), the United Kingdom is in a league of its own.
For that reason, the BOE had to raise interest rates by 0.25%, following the ECB path. Unlike its counterpart in Washington, the British central bank did not give any indications of stopping rate hikes any time soon.
British prime minister Rishi Sunak has no other choice but to cut spending and raise taxes, one year ahead of an election which will most likely mark the end of Conservative rule.
“Without pay growth, families are forced to cut back their spending, and businesses lose customers,” said Paul Nowak, Trade Union Congress’ general secretary. “That’s why a competent government would put pay growth at the heart of the UK’s economic plan.”
But the overall British administration seems impotent, facing an economic crisis that is at best setting back the UK for years, and at worst undermining its geostrategic role for the rest of the century.
