The bigger picture shows a broader problem for the UK economy, even if recession turns out to be the shortest in history

By John Mercury March 13, 2024

Was that it then? Only a few weeks after we learnt that the UK had slipped into a recession, today we learnt that we may already be out of it.

It’s still too early to be sure – after all, the formal definition of a recession hinges, for some reason no one can quite put their finger on, on whether the economy is growing or shrinking each quarter.

Two successive quarters of contraction constitute a recession; a quarter of growth means you’re out.

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Today’s data only covers a single month: January. But in that month the Office for National Statistics (ONS) reckons our gross domestic product – the most comprehensive measure of economic activity – grew by 0.2%.

That was more or less in line with what economists expected and, given they also expect another month or two of growth, that means there’s a decent chance that the quarter will be positive, and hence that the recession is over.

This will obviously be feted as good news, which of course it is. But the bigger picture is more complex.

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The recession we’ve been through was barely a recession. Usually, recessions are slumps characterised not merely by falls (and for that matter big falls) in GDP but sharp rises in unemployment and insolvencies. They typically go on for quite a while.

This recession was shallow – probably the shallowest in modern history. There is still a very decent chance it gets revised away entirely (remember these GDP numbers are only a first draft of economic history and are subject to dramatic revisions as subsequent data comes in).

Unemployment, while trending up, is still low.

It’s more accurate, really, to characterise the economy as just about flatlining. There was a bit of growth in the past month but a little bit of contraction the previous month.

Look at the data over a longer period and you see a long and ever so slightly bumpy line which is barely struggling to lift off.

And that is the broader problem for the UK – a distinct lack of impetus. The question is whether that changes this year.

The Bank of England and the Office for Budget Responsibility (OBR) expect relatively slow growth – and the fact that interest rates are still up at 5.25% is part of the explanation.

But those rates are expected to come down later this year (especially when inflation drops towards the Bank’s 2% target). The government’s tax cuts may also boost consumer spending.

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In other words, things might be looking up for the economy. A bit.

But in much the same way as this recession was a bit underwhelming, there’s a decent chance that the growth in the coming quarters might just be a little bit underwhelming, too.

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