Shadow chancellor Rachel Reeves said this is ‘Rishi’s recession’ but the people are paying for it Credit: Hollie Adams/Bloomber
Britain is suffering the longest hit to living standards on record, according to official figures that showed the economy is in recession. The Office for National Statistics (ONS) said output per person fell sharply at the end of last year, meaning the economy has failed to grow since early 2022 after accounting for population growth.
It marks the longest period of falling or stagnating living standards since records began in 1955 as economists warned that the first technical recession since 2020 masked a far deeper downturn in living standards.
The drop in so-called GDP per head contributed to an overall economic decline of 0.3pc in the final three months of 2023 in a blow to Rishi Sunak as he prepares to fight a general election this year.
The decline was much larger than predicted by analysts and follows a fall of 0.1pc in the previous three months. It means the UK has fallen into its first technical recession since the economy locked down four years ago.
GDP per head, which measures economic growth adjusted for population size, is seen as a good proxy for living standards because when an economy generates more value per person each year, that usually translates into higher household incomes.
Grant Fitzner, the ONS’s chief economist, said: “What matters for living standards and ultimately things like public sector finances is whether, adjusted for changes in the population, you are growing or shrinking.”
Mr Fitzner also warned that economic inactivity was a major factor holding back growth. The UK remains the only G7 nation yet to return to per-pandemic employment levels.
He said: “If more people were in work, consuming, producing, we would have higher GDP numbers. The fact that economic activity fell significantly post-pandemic and has only partly recovered is one of the factors underpinning weaker growth. Obviously that would also underpin weaker consumer spending, given there are fewer people in employment and spending money.”
The data also showed the economy barely grew in 2023, expanding by just 0.1pc across the whole year.
Excluding the pandemic, this is the weakest annual growth since the financial crisis in 2009.
Weaker growth suggests the Bank of England may be forced to cut interest rates faster to support the economy.
However, Megan Greene, a Bank of England policymaker, warned on Thursday that there was no guarantee it would cut interest rates when inflation fell to 2pc. Ms Greene said that consumer price rises falling back to the Bank’s 2pc target was not enough to “declare victory” and start lowering borrowing costs.
Statisticians said the quarterly drop was driven by a broad-based decline across all sectors of the economy, including a 0.2pc drop in services output and a 1.3pc fall in construction in the final three months of the year. House building has now been in decline for more than a year.
The ONS said a big decline in retail sales across the quarter hit the economy amid a disappointing Christmas season that saw households bring forward present-buying to take advantage of November Black Friday deals.
People also spent less money on hairdressing and beauty treatments over the Christmas period, the ONS said.
There was evidence suggesting that more parents pulled their children out of school early ahead of the holidays, highlighting ongoing concerns about attendance since lock down.
The Telegraph
