Is it really 'Rishi's recession'?

The economy is officially in recession, ITV News Business and Economics Editor Joel Hills explains what this means

The UK economy has been hit by a series of economic shocks in recent years, the majority of which Rishi Sunak had no control over.

He couldn’t have prevented COVID from reaching British shores and he can’t be held accountable for Russia’s decision to invade Ukraine.

But, last January, Rishi Sunak decided to stake his reputation on a pledge to grow the economy. And at the end of last year, the economy found a reverse gear.

Labour is calling it “Rishi’s recession.” It’s opportunistic, it’s not entirely fair but the prime minister did invite us to judge him on what happens to economic growth.

A general election is months away. Today’s news is a campaign gift for the Tories’ rivals.

But we should remember, the recession that the UK did, technically, enter last year is a very small one compared to previous downturns.

“We didn’t promise we were going to do them all at the same time” Last January, Rishi Sunak pledged to halve inflation, reduce debt and grow the economy, Joel Hills asked the chancellor if the U.K. entering a recession was a sign of failure

Gross Domestic Product (GDP) fell by 0.5% between July and December 2023. During the recession of 2008/2009, UK GDP plunged by 6.4%.

The recession of 2023 looks shallow, it’s possible it is already over and it may disappear altogether as the Office for National Statistics updates and revises the data in the months ahead.

The more important point is the economy isn’t growing and there are good reasons why that’s the case.

As the chancellor pointed out when I interviewed him this morning, the painfully high levels of inflation (not caused by Rishi Sunak) have squeezed the incomes of households.

Higher interest rates (not set by Rishi Sunak) have left households with mortgages poorer.

Neither strike action nor Brexit (which Rishi Sunak can influence) have helped.

Nor has the fact that the UK workforce is smaller than it was before COVID, in part because there has been a sharp rise in the number of people who cannot work because they are long-term sick.

But here’s the thing: when it comes to living standards (which is what we should care about most), it’s not the size of the economy that matters, it’s the amount of growth per person.

GDP per head in the UK (that’s the amount our economy produces, divided by all the people in the country) is the key measure that determines how much our incomes rise over time.

The terrible news is it has been falling for almost two years.

GDP per head in the U.K. is 1.1% lower than it was before COVID (in Q3 2019).

By contrast, over the same period, GDP per head has grown by 2.7% in the European Union and by 6.5% in the United States.

Earlier, I asked the chancellor why we are doing so badly. You can hear his explanation here.

“UK slips into recession” is a potentially calamitous headline for the government.

The prime minister has made a political pledge and, thus far, he has failed to deliver.

Economically, whether the UK economy contracted or indeed grew slightly at the end of 2023 is almost irrelevant.

What matters the most is the UK economy has been stuck in a low-gear for a long time. 

And, if you look back, living standards have barely improved for the last 15 years.

These are the problems we need our politicians to fix.

And if you speak to economists, many will tell you that they are not sure that Labour has the answers.

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