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Gloucestershire Business News

ANALYSIS: Recession: where's the bunny bounce?

Hardly the news to put a spring in your step as we embark upon the Easter celebrations, the UK is in recession. Or at least it is according to the latest analysis of how 2023 finally panned out.

The Office for National Statistics said this morning that our economy saw its second successive quarter of negative growth in Quarter 4 (Oct to Dec) 2023, as Gross Domestic Product (GDP) fell by 0.3%, "where the tightening of financial conditions over the previous two years has fed through to the real economy".

And that fact puts us in "technical recession", which is defined by two or more consecutive quarters where output has decreased.

There's a caveat from the ONS behind this headline though: more searching measurements of any downward change in our gross domestic product (GDP) must also be factored in.

The ONS said: "So far, initial indications on the depth, diffusion [ie how broad it is], and duration of the decrease in output point to a mild recession by historical standards. It should also be noted that these estimates of GDP remain subject to revision (positive or negative), in line with the national accounts revision policy."

The facts, however, remain: GDP contracted by 0.3% in Quarter 4 (Oct to Dec) 2023, with higher prices and tighter financial conditions applying the handbrake to our economy.

The UK was also a net borrower, from the rest of the world, of 3.1% of GDP in Quarter 4 2023, which is a widening in the current account deficit from Quarter 3 (July to Sept), following a decrease in our net investment income.

There was also a further cooling in labour demand, as job vacancies fell for the 20th consecutive period in December 2023 to February 2024, while annual growth in regular earnings rose 6.1% in the three-month period from November 2023 to January 2024, following the peak of 7.9% earlier in the year.

Looking at how far our money goes, headline 12-month consumer price inflation (CPI) slowed from 4.0% in January, to 3.4% in February 2024, while the annual rate of core inflation declined to 4.5% in February. That's the first time it has been below 5% in over two years.

Despite this confirmation, broad reaction today suggests a broad agreement that the recession is mild - and that we may well be already moving back out of it.

Ahead of today's confirmation the Federation of Small Businesses (FSB) expressed a feeling of cautious optimism last week, given key economic indicators for the first part of 2024.

Tina McKenzie, FSB policy chair, said: "In order for any optimism to be nurtured, the promising start signalled by the increase in the VAT threshold to £90,000, the announcement on apprenticeships from the start of the week, and the business rate relief for small firms in the retail, hospitality and leisure sectors should be built on.

"What unites these growth-promoting measures is that they are targeted where they will have the most impact: on small firms, who are the ones with the potential to expand and kick the economic recovery into a higher gear."

The FSB feels that more measures are now needed to ensure employment levels are maintained and improved. Wage inflation has eroded the Employment Allowance's relative value, underlining the need for it to be uprated, especially with the impending rise in the National Living Wage, it said.

"This will help small employers keep people in work, and to grow their workforce. Politicians and policymakers should remember that small firms have been the driving force behind our recovery from past recessions, and this time around it'll be no different, if they are given the right conditions to start up, scale up, and prosper."

With an eye on cutting interest rates by the summer, the Bank of England says it still anticipates growth this year, albeit of a muted 025%. Official forecasts from the government predict a more punchy 0.8%.

Against that backdrop, the ONS figures also show a rise of 0.7% in household disposable income. That's surely good news for Gloucestershire's stakeholders in retail and entertainment?

The consulting firm RSM is saying that this modest increase could help impart spending confidence and increase retail interaction.

With a focus on what it calls 'the real economy" RSM economist Tom Pugh said that analysis of the middle market - of the fortunes of smaller and medium-sized businesses - shows resilience is still evident. As such, he is optimistic about the start of 2024.

Mr Pugh said: "There are plenty of reasons to be more positive on the outlook for the rest of this year. Lower inflation, strong wage growth and falling interest rates will give households a boost to their disposable incomes in the summer. What's more, we expect consumer confidence to continue to improve, meaning that rising incomes should result in more spending. As a result, retailers probably won't have to wait much longer before a material upswing in their prospects."

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