Vulnerability to Recession Heightened as UK GDP Growth Stalls

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In November 2023, the British economy demonstrated stronger-than-expected growth. That being said, previous months' lackluster performances have left it in a precarious state, heightening the risk of a potential recession. This scenario poses a significant challenge for Prime Minister Rishi Sunak in the lead-up to the 2024 election.

According to the Office for National Statistics (ONS), the UK's gross domestic product (GDP) experienced a 0.3% increase in November, rebounding from a 0.3% decline the preceding month. Although these figures slightly surpassed economists' projections of 0.2% growth in a Reuters poll, the three-month period leading up to November saw a 0.2% contraction, surpassing economists' expectations of a 0.1% decline.

If output continues to decline or remains stagnant in December, it could result in a second consecutive quarter of negative growth, setting the stage for the economy to slip into a mild recession, as suggested by the ONS.

Grant Fitzner, Chief Economist at the Office for National Statistics, emphasized that the broader perspective indicates minimal economic growth over the past year. November saw a rebound in GDP, primarily led by the services sector, encompassing retail sales, car rentals, and computer games, showcasing increased activity.

Throughout the previous year, the British economy was faced with challenges, with households feeling the strain of surging inflation and the Bank of England implementing its highest interest rates in 15 years.

In November, the Government's Office for Budget Responsibility (OBR) projected GDP growth of 0.6% in 2023 and 0.7% in 2024. This sets a subdued backdrop for the impending national elections, scheduled by Sunak to take place in the second half of the current year.

While the OBR and the Bank of England adopt a more cautious stance, some economists anticipate faster growth in the coming year. The drop in inflation below 4% in November, coupled with declining mortgage rates, suggests that lenders anticipate a forthcoming cut in borrowing costs by the central bank later in the year.

The data released on Friday revealed that economic output in November was 0.2% higher than the same month a year earlier, with a cumulative rise of just 2.5% since 2019.