Labour’s economic plan has got off to a rocky start, with the prospect of official figures next month showing little to no growth in its first six months of government.
This combination of economic factors points to the possibility of a recession if there is not an uptick in growth.
While November’s data showed a return to growth for the first time since August, the UK’s gross domestic product (GDP) staggered to a level which offered little respite to Chancellor Rachel Reeves when the figures were announced earlier this month.
Keir Starmer and Rachel Reeves are hoping deregulation will help kickstart economic growth (Photo: Darren Staples/AP)
Most economists were expecting the UK’s GDP to rebound by at least 0.2 per cent in November.
If the UK’s economy shrinks over two consecutive quarters, the country would officially be in a recession.
Surging government borrowing costs
While the markets have since calmed slightly after the sell-off of government bonds fell back thanks to a surprise fall in inflation, pressure is still mounting on the Chancellor indicating that she may be on track to miss her fiscal rules.
She is also having to contend with a bigger-than-expected surge in government borrowing last month to £17.8bn – the highest level for four years according to the ONS.
The ONS said borrowing was driven higher by spending on public services and benefits, as well as rising debt interest payments, with an increase in tax receipts also offset by the previous government’s move to cut national insurance.
Year-to-date borrowing is also about £4bn more than the £125.9bn forecast by Britain’s independent fiscal watchdog, the Office for Budget Responsibility (OBR).
While figures on Wednesday showed inflation edging back to 2.5 per cent last month from 2.6 per cent in November, many economists believe it will increase to close to 3 per cent in the coming months.
Businesses have warned prices will need to rise to offset the cost hit while hiring also appears to be affected.
Official figures revealed that average regular pay surged to 5.6 per cent in the three months to November, which is the highest since last May, up from 5.2 per cent in the previous three months and driven by growth in the private sector.
Job market gloom
Britain’s unemployment rate has risen unexpectedly and the number of workers on payrolls has fallen by the most since the height of the coronavirus pandemic, according to figures from the ONS published this month.
The number of workers on payrolls plunged by 47,000 during December to 30.3 million – the biggest drop since November 2020. It follows a revised 32,000 fall the previous month.
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