The British economy could hit “rock bottom” in 2024, but one expert has said the UK could still avoid a recession. Gross domestic product (GDP) fell in the third quarter of the year by a revised 0.1 percent against the zero growth initially estimated, the Office for National Statistics (ONS) said on Friday (December 22).
Small business owners have said the priority should now be to build consumer confidence and that the Bank of England risks being “behind the curve again” amid calls for a cut in interest rates.
Ken James, Director at Contractor Mortgage Services, told Express.co.uk: “The UK economy is staggering around like drunkards from a Christmas party.”
He added that the “disappointing” ONS figures may mean interest rate cuts come earlier than expected as the BoE’s Monetary Policy Committee tries to stave off recession and breathe life back into the economy. The base rate is currently 5.25 percent.
Mr James said Chancellor Jeremy Hunt may look at the possibility of tax cuts in the New Year, adding: “Could we see this reaction coming early in 2024, or will they sit back and wait to hit rock bottom first?”
Today’s revised figures show GDP flatlined in the second quarter of the year, after previous estimates showed 0.2 percent growth.
If GDP contracts between October and December then the economy will have entered a technical recession, defined as two consecutive quarters of negative growth.
Mr Hunt said the economic outlook should not be dampened by the worse-than-expected figures. He added: “The medium-term outlook for the UK economy is far more optimistic than these numbers suggest.
“We’ve seen inflation fall again this week, and the OBR (Office for Budget Responsibility) expects the measures in the autumn statement, including the largest business tax cut in modern British history and tax cuts for 29 million working people, will deliver the largest boost to potential growth on record.”
Prime Minister Riski Sunak pledged at the start of this year to “grow the economy”. Shadow Chancellor Rachel Reeves said the revised GDP figures show the PM has failed to meet his promise.
Julian Jessop, Economics Fellow at the Institute of Economic Affairs, told Express.co.uk the downward revisions to growth confirm the UK economy has been flatlining since the second quarter of 2022, weighed down by higher inflation and higher interest rates.
He said: “More timely surveys for November and December suggest there was a small pick up towards the end of 2023, so the UK could still avoid a technical recession. But GDP per head has now contracted again for two successive quarters.
“The Government can at least point to the fact that the rest of Europe is also struggling, and that GDP is now falling in Canada and Japan too. Few economies have escaped the global slowdown.
“More positively, the sharp fall in inflation should be a game changer for 2024, easing the pressure on real incomes and allowing interest rates to fall. The prospects for next year therefore look a little brighter, but there is still no sign of a return to meaningful growth.”
Darryl Dhoffer from The Mortgage Expert said the revisions to GDP raise the spectre of recession and are “very worrying”.
He added the figures will put Threadneedle Street under significant scrutiny, with public and market confidence in the Bank of England’s ability to manage the economy now at an “all-time low”.
Mr Dhoffer told Express.co.uk: “The calls for the Bank of England to cut interest rates to stimulate growth are bellowing, but they’re falling on deaf ears. Raising rates further would be madness. Cuts are needed sooner rather than later.”
Martin Beck, Chief Economic Adviser to the EY Item Club, said October’s decline in GDP, the growing drag from past rises in interest rates and industrial action holding back activity in some sectors mean the economy in the fourth quarter is likely to flatline at best, with a technical recession “a serious possibility”.
He sounded a note of optimism, adding: “However, prospects for 2024 are improving. Inflation is falling faster than had been expected and declines in wholesale gas prices point to a cut in energy bills in the spring, implying a better consumer outlook.
“So, a worse-than-expected performance this year should be balanced by a better outlook for 2024 and 2025.”
Stephen Perkins, Managing Director of Yellow Brick Mortgages said the revised GDP figures show the strained breaths of an economy being tightly strangled by the Bank of England over the past 12 months, bringing many businesses “to their knees”.
He told Express.co.uk: “That’s especially the case in the retail sector. This week’s inflation data, and the fact the next base rate review is not until February, means the January inflation data will be critical in where the economy and mortgage rates go next.
“In the meantime, there is still some quiet confidence we have turned the corner on the rate front. The Bank of England is once again at risk of being seriously behind the curve.”
UK Consumer Prices Index inflation fell to 3.9 percent in November, its lowest level for more than two years. The drop was driven by falling fuel prices.
