Britain’s economy fell into a recession in the second half of 2023, a tough backdrop ahead of this year’s expected election for Prime Minister Rishi Sunak who has promised to boost growth.
Gross domestic product (GDP) contracted by 0.3 per cent in the three months to December, having shrunk by 0.1 per cent between July and September, official data showed.
The fourth-quarter contraction was deeper than all economists’ estimates in a Reuters poll, which had pointed to a 0.1 per cent decline.
Sterling weakened against the dollar and the euro. Investors added to their bets on the Bank of England (BoE) cutting interest rates this year and businesses called for more help from the government in a budget plan due on March 6.
2:15 Recession fears: Trudeau says there’s ‘room to respond’ because feds have been ‘so fiscally responsible’
Thursday’s data means Britain joins Japan among the Group of Seven advanced economies in a recession, although it is likely to be short-lived and shallow by historical standards. Canada has yet to report GDP data for the fourth quarter.
Britain’s economy stands just one per cent higher than its level of late 2019, before the COVID-19 pandemic struck – with only Germany among G7 countries faring worse.
Sunak promised to get the economy growing as one of his key pledges to voters last year. His Conservative Party has dominated British politics for much of the past seven decades, with a reputation for economic competence. But Labour is now more trusted with the economy, according to opinion polls.
British households are due to see their first drop in living standards between one national election and the next since the Second World War, analysts have said.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the GDP figures had more political significance than economic, with voters due to elect lawmakers in two constituencies on Thursday.
“The news that the UK slipped into technical recession in 2023 will be a blow for the prime minister on a day when he faces the prospect of losing two by-elections,” Gregory said.
1:48 Canadian economy avoids technical recession with 0.1% growth in September: StatCan
Finance minister Jeremy Hunt said there were “signs the British economy is turning a corner” and “we must stick to the plan – cutting taxes on work and business to build a stronger economy.”
The opposition Labour Party rejected those claims.
“The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives,” Rachel Reeves, Labour’s top economy official, said.
Media reports said Hunt was seeking to cut billions of pounds from public spending plans to fund pre-election tax cuts in his budget, if penned in by tight finances.
The Office for National Statistics (ONS) said the economy grew 0.1 per cent across 2023 compared with 2022. The BoE forecasts output will pick up slightly in 2024 but only to 0.25 per cent growth.
Britain’s economy has been stagnating for nearly two years.
The COVID-19 pandemic triggered the deepest contraction on record over two quarters in early 2020 when the economy slumped by 22 per cent. Before that, the global financial crisis sparked a severe recession that lasted just over a year, from the second quarter of 2008 through to the second quarter of 2009.
INTEREST RATE CUTS AHEAD?
Data on Wednesday showed inflation held at a lower-than-expected four per cent in January, reviving talk among investors about a BoE rate cut as soon as June. But strong wage growth reported on Tuesday underscored why the BoE remains cautious.
Hunt said he was hopeful the central bank could start to cut borrowing costs by the “early summer.” Investors were pricing a roughly 68 per cent chance on a first BoE rate cut at its June meeting.
Governor Andrew Bailey said on Wednesday that there had been some signs of an economic upturn in the economy but he still wanted more evidence that inflation pressures were abating.
“While the Bank of England’s focus will likely remain on price data, the bigger drop in output and the politics of being in a technical recession will no doubt become uncomfortable,” Sanjay Raja, chief UK economist at Deutsche Bank, said.
Economic output fell by 0.1 per cent in monthly terms in December after 0.2 per cent growth in November, the ONS said.
Manufacturing, construction and wholesale were the largest contributors to the decrease in GDP in the fourth quarter.
GDP per person has not grown since early 2022, representing the longest such unbroken run since records began in 1955.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
