Why UK economy resembles old clips of aeronauts failing to get flying machines off the ground

The British economy increasingly resembles those sepia-toned clips of early American aeronauts trying and failing to get off the ground.

Typically these hapless pioneers race along a harbour wall, strapped to a homemade contraption informed more by the spirit of optimism than a realistic grasp of physics.

With hand-cranked mechanical wings clanking, they race towards the edge and leap into the void, hopes soaring at precisely the moment gravity asserts itself, dragging them and their creations into the brink.

The data that informs economic and political decision-making in the UK has just done likewise.

In a year of flatlining performance, there was the small consolation that at least the economy was growing, if only marginally.

Not anymore.

Revisions of growth data, carried out routinely by the Office for National Statistics, have hauled GDP back to earth and to the edge of its own metaphorical harbour wall, beneath which lies recession.

The ONS now says that in the third quarter of 2023 the economy shrank by 0.1%, not a huge move down from the previous estimate of zero, but negative nonetheless. The second quarter, meanwhile, has been dragged back from growth of 0.2% to zero.

With GDP in October, the first month of the fourth quarter, falling 0.3%, that has taken the UK to the brink of a technical recession, defined as two successive quarters of negative growth.

Already in recession?

In fact, if we look at GDP per head of population, we are already there, with per-capita growth at minus 0.1% in Q2 and minus 0.3% in Q3.

That helps explain why, whatever the data says, many still feel the cost of living squeeze acutely.

The definition of recession is somewhat arbitrary and has its roots, the ONS says, in the work of US Presidential speech writers of the 1960s, but it is widely accepted and matters to the economic and political discourse.

Interest rate impact

For economists at the Bank of England, the figures will inform their next steps in the New Year after December’s decision to hold interest rates at 5.25%.

A steeper-than-expected fall in the rate of inflation revealed earlier this week was good news, suggesting that the rate squeeze is working faster than anticipated.

The GDP revisions are more evidence that rates are doing their job by slowing down the economy. Conversely and inevitably, both these bits of data will also increase pressure on the Bank to start cutting them.

Bad news but an easier target for Sunak

Politically, meanwhile, this is another kick in the tail-end of the year for the prime minister, who has made delivering economic growth one of his five pledges, only one of which (halving inflation) has been achieved, and has more to do with economic gravity and the Bank than Downing Street.

Number 10 has refined the pledge in its favour, and now says that Rishi Sunak wants to be judged on whether there is any growth in Q4 compared to Q3.

Better-than-expected retail figures in November may give him hope that is still in reach, and ironically today’s contraction in Q3 may make growth in Q4 more likely to achieve.

And to be clear, tangible growth is good news for everyone, not just those fighting for their futures in Westminster.

But increasingly Mr Sunak looks more like one of those predecessors to the Wright Brothers than a man with considerable experience of private jets would like.

All year the economy has bumped along, utterly unable to find the momentum or a kindly updraft that would enable it to escape the ground.

With the Conservative Party tied to the tail fin, it makes it all the more likely that the election date, Mr Sunak’s own harbour wall, will be delayed as long as it can be avoided.