The British economy expanded somewhat faster than anticipated in November, but it is still vulnerable to a modest recession, which might be detrimental to Prime Minister Rishi Sunak ahead of the anticipated 2024 election.

After declining by 0.3% in October, the gross domestic product (GDP) increased by 0.3%, somewhat exceeding analysts’ projections of a 0.2% growth in a Reuters survey.

However, output decreased by 0.2% in the three months ending at the end of November, above the 0.1% decline that was predicted, according to data released on Friday by the Office for National Statistics (ONS).

According to the ONS, a second consecutive quarter of declining output could result from a contraction or potentially even a flat December output. The economy would enter a brief recession as a result.

“It remains touch-and-go whether the economy tipped into a technical recession in the second half of 2023,” Investec economist Sandra Horsfield said. “In either case, a better description of the trend might be stagnation. The recession, if it did occur, looks to have been as mild as they come.”

Following the data, the value of the pound against the US dollar barely moved, but the yields on government bonds decreased as investors began to factor in a marginally increased likelihood that the Bank of England (BoE) would start lowering interest rates in May.

In 2023, the British economy found it difficult to get up steam due to the strain that high inflation and the highest BoE interest rates in fifteen years placed on households.

November’s economic output increased by just 0.2% from the previous year and by just 2.5% from 2019.

A large portion of Europe’s economy is also struggling, in part because to Russia’s full-scale invasion of Ukraine in February 2022.

Germany’s economy declined in the third quarter, and the largest economy in Europe was on the verge of a recession after figures released on Tuesday revealed an unexpectedly substantial decline in industrial output in November.

In comparison, the third quarter saw the U.S. economy grow at an annualised pace of more than 5%.

“The longer-term picture remains one of an economy that has shown little growth over the last year,” ONS chief economist Grant Fitzner said after the British GDP numbers were published.

“GDP bounced back in the month of November, however, led by services with retail, car leasing and computer games companies all having a buoyant month.”

Chief UK economist Samuel Tombs of Pantheon Macroeconomics called it a “coin toss” whether or not output would decline in the fourth quarter.

Even while polls indicated that corporate activity would pick up again in December, he noted that inconsistent retail sales and the likelihood of more doctor strikes would limit healthcare availability.

Growth of 0.6% for 2023 and 0.7% for 2024 is projected by the government’s Office for Budget Responsibility (OBR), providing a shaky foundation for the anticipated general election in the latter part of 2024.

Compared to the OBR and the much more pessimistic BoE, some analysts believe there is greater room for growth this year. Mortgage rates have decreased and inflation has dipped below 4% as lenders anticipate lower borrowing costs from the central bank later this year.

“The economy should shake off its torpor in 2024,” Tombs said, predicting wage growth and lower inflation and interest rates would boost households’ real disposable income by 2%.

In response to Friday’s report, Finance Minister Jeremy Hunt stated that while inflation continued to be a drag on growth, the tax cuts he announced in November for firms and workers will improve Britain’s long-term prospects.

The finance minister of the opposition Labour Party, Rachel Reeves, claimed that because of the slow growth, Britain’s total tax burden as a percentage of GDP remained at its highest level in seven decades.

(Adapted from Bloomberg.com)

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