UK is ‘on the cusp of recession’, senior economist warns

·Political Correspondent - Yahoo News UK
·4 min read
British Prime Minister Boris Johnson (R) and Chancellor of the Exchequer Rishi Sunak leave 10 Downing Street in central London to attend a Cabinet meeting as Parliament returns after summer recess amid the ongoing Coronavirus pandemic on 01 September, 2020 in London, England. (Photo by WIktor Szymanowicz/NurPhoto via Getty Images)
The UK's economy shrank by 0.1% in March sparking warnings of a recession. (Getty Images)

A senior economist has warned the UK is on the brink of a recession as soaring inflation and stagnating growth create a "worst of all worlds" scenario.

New data released by the Office for National Statistics (ONS) on Thursday showed that gross domestic product (GDP) fell by 0.1% in March.

The UK economy grew by 0.8% in the first quarter of 2022.

It comes the week after the Bank of England (BoE) raised interest rates to 1% in an attempt to bring down inflation after the consumer price index (CPI) hit 7%, the highest in three decades.

Read more: Rishi Sunak urged to announce emergency budget to rescue UK economy

In a bleak forecast, the Bank warned that the UK could enter a recession by the end of the year.

They also said they expect inflation to surpass 10%, with the rising cost of energy driving up prices.

Responding to the growth figures Miatta Fahnbulleh, CEO at the New Economics Foundation (NEF), warned the country was on the "cusp of recession".

"UK GDP only increased by an estimated 0.8% in Q1," Fahnbulleh tweeted on Thursday.

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Inflation is at its highest level for 30 years. (ONS)

"And this is before the impacts of increased interest rates and soaring energy bills have fed through.

"We are now on the cusp of recession — spiralling prices and a stuttering economy. The worst of all worlds."

A recession is two consecutive quarters (six months) of negative economic growth.

Fahnbulleh urged the government to announce more financial support amid the gloomy fiscal outlook.

Read more: FTSE 100 tumbles as recession fears rise after UK economy shrinks

"The government should introduce a package of measures to increase benefits and wages to help people make ends meet, which would also give a boost to our ailing economy. It's a win-win," she said.

Labour criticised the government on Thursday, claiming ministers are "out of ideas" - and renewed calls for an emergency budget.

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Miatta Fahnbulleh, CEO at the New Economics Foundation (NEF), has warned the country is on the "cusp of recession". (Twitter/@miasf)

“That the chancellor ignored serious warnings undermines any claim he couldn’t have done more to protect the British economy from soaring inflation," said shadow chancellor Rachel Reeves.

“The government's Queen's Speech this week was out of ideas and out of touch, devoid of any real economic plan for growth or to tackle the cost of living crisis.

“Anything less than coming back urgently with an emergency budget to help ease the pressure from the cost of living crisis is a failure by this Conservative government.”

Read more: 'I'm glad': Tory MP who sparked food bank outrage doubles down after backlash

The government has caused frustration with mixed messaging on whether more financial support will be announced to help with the cost of living.

On Tuesday, Boris Johnson implied extra help was coming in days, but was swiftly rebuffed by the Treasury who said no announcements were imminent.

Two days later, the prime minister said help would be coming in July, but failed to specify what it would look like.

File photo dated 15/10/21 of shoppers in a supermarket. Shop prices are up 2.7% on last year marking their highest rate of inflation since September 2011, figures show. The impact of rising energy prices and the conflict in Ukraine continued to feed through into April's retail prices, with no sign of them abating, according to the BRC-NielsenIQ Shop Price Index. Issue date: Wednesday May 4, 2022.
The Bank of England (BoE) has said they expect inflation to surpass 10% this year. (PA)

Despite the economy shrinking in March, Rishi Sunak struck an optimistic tone on Thursday claiming "the UK economy is continuing to grow".

"The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times," he said.

Read more: 'Really bad trouble’: Economists’ warning over mortgage repayments amid cost-of-living crisis

“Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.

“Growth is the best way to help families in the longer-term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.”

The new growth figures come after the Office for Budget Responsibility (OBR) announced in March that living standards are set to fall by the steepest on record.

Watch: UK growth slows to weakest for a year as recession fears grow

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