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UK Prime Minister Rishi Sunak is about to learn if Britain tipped into a technical recession at the end of last year, a statistical nicety that could hand Labour a valuable propaganda weapon ahead of an election.
Bank of England governor Andrew Bailey said that data on gross domestic product, to be published at 7am on Thursday by the Office for National Statistics, could go “either way”.
Bailey has argued that people should not put “too much weight” on whether the economy contracted slightly for two successive quarters in the second half of 2023.
But Labour officials said that if Britain had entered into a period of even modest negative growth it would be a “big moment”, handing the party valuable ammunition after a difficult week.
One official said: “To have people talking about recession in an election year isn’t good for Rishi Sunak. His selling point was supposed to be that he knew how to run the economy.”
The ONS’s first estimate of the economy’s performance for the final quarter of 2023 is by definition backward looking and both Sunak and Bailey on Wednesday preferred to focus on more positive news for 2024.
Bailey said the latest inflation data was “good news”, confirming that the question now facing the BoE was when it should cut interest rates, rather than how high they might need to go. ONS data showed that consumer prices rose at an annual rate of 4 per cent in January, the same pace as in December.
Bailey, giving evidence to the House of Lords economic affairs committee, said it was “encouraging” to see inflation holding steady, as the details showed improvement not only for energy and food, but also for services — a better guide to underlying price pressures in the domestic economy.
The BoE Monetary Policy Committee would still need to see further signs of wage pressures easing before it could be confident that inflation was moving sustainably back towards the central bank’s target of 2 per cent, Bailey said.
But he said the data was consistent with the position the MPC had taken when it met earlier this month, noting: “The big change is that we’ve moved from facing the question of how restrictive do we have to be . . . to how long do we have to maintain this stance.”
Sunak was also positive about the economy as he chaired the first meeting of his 2024 business council, which drew bosses of companies including Rolls-Royce, ITV, Unilever and Greggs for talks in Number 10.
Sunak insisted the economy had “turned the corner” and that he was “determined to make the UK the best place in the world to start to grow and invest in businesses”.
“Of course, we’re still battling with lots of global headwinds, not least the Red Sea at the moment,” he added, referring to the shipping crisis which has disrupted supply chains.
“But at the start of this year I absolutely believe the economy has turned the corner and we’re now pointing in the right direction.”
Sunak said “everyone is predicting us to grow this year”. Tory officials noted that even if Britain had dipped into a technical recession at the end of last year, this was because of the exceptional circumstances of an inflationary spike.
Labour leader Sir Keir Starmer has endured a torrid week with rows over his abandoning of the party’s £28bn green transition programme and the antisemitism dispute over its by-election candidate in Rochdale.
Meanwhile, Sunak also appeared on Wednesday at an event alongside Blackstone chief executive Steve Schwarzman, co-founder of the US private equity firm which manages more than $1tn in assets.
The prime minister attended the groundbreaking ceremony for Blackstone’s new London headquarters, in an event intended to signal the confidence of big overseas investors in the UK.
Blackstone reached a deal in 2022 to secure a new purpose-built European base, occupying the entire south side of Berkeley Square in London’s Mayfair. The project to build the new 10-story building, led by developers CO-RE and architects AHMM, is set to be finished in 2028.