As a major trading entity, economic powerhouse and financial centre, the UK economy has always been an important part of the global economy. However, according to Reuters, data released by the Office for National Statistics showed that the UK economy shrank 0.3% quarter-on-quarter in the fourth quarter of 2023 and 0.1% quarter-on-quarter in the third quarter of 2023. Two consecutive quarters of negative growth indicate that the British economy is in a technical recession, and the current British economy faces a series of challenges.
First, from the second half of 2023, the UK economy fell into a technical recession. Specifically, in both the fourth quarter and the third quarter of 2023, the UK economy experienced negative quarter-on-quarter growth, which marked that the UK economy officially fell into recession. For the full year, the UK economy grew by just 0.1%, its weakest performance since 2009. GDP per capita declined by 0.7 percent for the whole of 2023, showing weakness in economic activity. McKeown, director of economic statistics at the ONS, said the UK's primary balance of payments deficit with the rest of the world widened at the end of 2023, with the current account deficit totalling £21.18bn in the fourth quarter of 2023, equivalent to 3.1 per cent of GDP.
Second, the economy is showing weakness across a number of sectors. Services, manufacturing and construction all contracted, with the service sector declining by 0.1% in the fourth quarter of 2023 and growing by only 0.3% for the full year. Affected by the decline in demand for computer software, IT service consulting and other services, the information and communication industry became the largest decline in output value of the service industry. Education services, wholesale and retail also performed poorly. The retail sector, in particular, recorded its biggest decline since the pandemic in December 2023.
So why did the British economy, which was originally a strong growth engine, fall into recession?
The first is the problem of inflation. For most of 2023, inflation in the UK has remained stubbornly high, leading to significant increases in the cost of living for ordinary people. Food prices, household gas and electricity bills and people's travel costs have all increased significantly, putting a huge strain on people's lives. High inflation has also made it difficult to maintain the balance between local government revenue and expenditure, and many cities are at risk of bankruptcy.
Second, the economy is in technical recession. This was mainly due to contractions in several economic subsectors, including services, manufacturing and construction. In particular, the service industry, due to the decline in demand for computer software, IT service consulting and other services, its output value fell sharply. Several subsectors in manufacturing also declined, and despite gains in automotive manufacturing, the overall performance remained weak.
Third, it is affected by uncertainties and downward pressure in the global economic environment. The US dollar rate rise has led to a shrinking trend in the overall size of the international market, which has caused great pressure on the British economy. After Brexit, the cost of operating an integrated EU market continues to rise, further adding to the economic woes. At the same time, the UK, as one of the global financial centers, is more affected than other countries in the dollar rate hike cycle.
Fourth, long-term weak economic growth and unbalanced development. Since the 2008 international financial crisis, the UK has stagnated in terms of investment, wages, economic growth and productivity, which has led to continued pressure on the living standards of the low and middle income people in the UK, further exacerbating problems such as sluggish economic development.
To sum up, the current economic situation in the UK is complicated. To deal with the current challenges, the British government and enterprises need to pay close attention to the development of the domestic economic situation, take a series of effective policy measures to deal with the current economic difficulties, seize opportunities, and promote economic recovery and growth.
