With the Easter effect failing, retail sales stagnating and unemployment rising, can the UK economy emerge from a technical recession?

The UK economy fell into a technical recession in the last six months of 2023. The news of the unexpected stagnation of retail sales data after the intensive release of the UK economic data in April, coupled with the previous cooling of the labor market, once again cast a shadow on the UK's economic recovery.

Can the UK economy emerge from a technical recession and recover steadily in 2024?

Bloomberg economist Niraj Shah believes that the unexpected stagnation of retail sales in the UK in March shows that consumers are still cautious, and the early Easter has not changed the mood of consumers: there is growing evidence that the UK economy is coming out of a technical recession in the first quarter of 2024, but these data suggest that the economic recovery will remain weak.

The UK team at Oxford Economics is more optimistic, believing that the UK's second consecutive increase in gross domestic product (GDP) in February, as well as the official upward revision of January's growth rate, strengthened confidence that the UK economy is finally starting to recover after two years of stagnation, "With the March indicators positive, UK GDP is expected to grow by 0.4% month-on-month in the first quarter, which will reverse the downward trend seen in the second half of 2023." ”

UK retail sales and employment data for March disappointed

UK retail sales growth was unexpectedly flat in March, following expectations of 0.3% and a revised revision to 0.1% from 0.2%.

Some authoritative surveys suggest that the Easter effect may boost food sales. This year's Easter falls on March 31. However, as it turned out, the Easter effect did not work.

Heather Bovill, a senior statistician at the Office for National Statistics, said that in March, sales at hardware stores, furniture stores, petrol stations and clothing stores all increased, however, these gains were offset by a decline in food sales. Retailers at department stores said price increases affected transactions.

Breakdown data showed that consumers were spending less on food and department stores due to price sensitivity, but auto fuel sales boosted the weak figures: excluding auto fuel, overall sales fell 0.3% in March, erasing the same magnitude of growth from the previous month.

Phil Monkhouse, UK country manager at financial services firm Ebury, said: "Today's retail sales figures are a bit discouraging and dash retailers' hopes for a rebound in Easter traffic. ”

Kris Hamer, Director of Insights at the British Retail Consortium, said: "Big-ticket items such as furniture continue to be undersold as consumer spending remains constrained by the high cost of living. Footwear sales were affected by inclement weather. "The UK has been very wet in the last three months, with heavy rainfall in the first half of March affecting sales.

Linda Ellett, Head of Consumer Markets, Leisure and Retail, KPMG UK, said in a statement released last week by the British Retail Consortium: "Consumer confidence remains fragile and households continue to be closely watching where their tight budgets are being spent. ”

The cooling of the UK labour market is also one of the manifestations of weak economic growth. Data released just this month showed that the unemployment rate in the UK rose to its highest level in six months, the number of jobs in the economy fell and the labor market is cooling.

The unemployment rate rose to 4.2% in the three months to February from 3.9% in the previous period, according to the Office for National Statistics. This is the largest increase since 2020.

The cooling of the labor market is also reflected in the reduction in job openings. Between January and March 2023, there were 13,000 fewer job openings in the UK compared to the previous quarter. This is the 21st consecutive quarter of decline in the number of job vacancies in the UK market.

One reason for this is that the continuous rise in employee wages has led to companies hiring on the sidelines. In the three months to the end of February, UK employee pay rose 6% year-on-year excluding bonuses and 5.6% year-on-year including bonuses, both above inflation over the same period.

Sluggish recovery?

On April 17, local time, the British Office for National Statistics released data showing that the UK consumer price index (CPI) rose by 3.2% year-on-year in March, lower than the previous value (3.4%), and the increase hit the lowest level in two and a half years, mainly driven by the slowdown in food price increases. Core inflation, which excludes food, energy and tobacco prices, was 4.2%, down from 4.5% in February.

Previously, official UK data confirmed that the country's economy fell into recession in the last six months of 2023, mainly due to high inflation and high interest rates dampening household spending. According to the Office for National Statistics, the country's economy contracted by 0.4% in the third and fourth quarters of last year. On a year-on-year basis, the UK economy shrank by 1.2% in the last three months of last year, while the US economy grew by more than 3% over the same period.

According to the Office for National Statistics, the UK economy grew by 0.1% in 2023, while the country's per capita GDP fell by 0.6% for the whole of last year as the UK's population continued to grow.

According to an analysis by the Office for National Statistics, weak household consumption, weak investment and trade are all contributing to the decline in UK GDP.

Ashley Webb, an economist at Capital Economics, said in a report that time-sensitive indicators such as business managers' surveys also suggest that the British economy may have come out of recession in the first quarter of this year.

So far, data released by the UK show that in January, the UK's GDP grew by 0.3% month-on-month, and in February, it increased by 0.1% month-on-month. If this month-on-month growth rate can continue for three months, the UK economy will emerge from recession.

Andrew Goodwin, chief economist at Oxford Economics, told CBN reporters that the UK Bureau of Statistics raised the month-on-month GDP growth rate from 0.2% to 0.3% in January, and increased by another 0.1% in February, consolidating the growth momentum.

He explained that the recovery in UK GDP could have been stronger had it not been for the following two factors.

"First, unusually wet weather in February disrupted construction activity, with output falling by 1.9% month-on-month. Secondly, the strike of NHS workers in the United Kingdom meant that a significant number of working days were lost at the end of the year, causing huge damage to medical output. He said the initial signs in the UK in March were positive.

"All three surveys from S&P Global showed that UK economic activity grew for the first time since September 2022. The health and transport sectors appear to have lost very few working days due to strikes. He predicts that UK GDP is expected to grow by around 0.4% quarter-on-quarter in the first quarter, excluding historical revisions.

(This article is from Yicai)