Economic Storm Clouds Gather as UK Teeters on Brink of Recession
The UK economy is facing a perfect storm of challenges, with a leading investment bank warning that the country may already be in recession. The Labour government’s record-breaking tax hikes and policy changes have dealt a significant blow to economic growth, according to analysts at Shore Capital.
Consumer Confidence Plummets
Separate figures reveal that consumer confidence has nosedived to a 12-month low, with households increasingly anxious about job security in the wake of the Budget. The S&P Global UK Consumer Sentiment Index (CSI) shows a sharp decline in confidence, with households experiencing the biggest deterioration in their finances since August 2023.
Economic Growth Stalls
Since Labour’s election victory in July last year, Britain’s economy has stagnated, reversing the strong growth seen in the first half of 2024. Although monthly GDP rose marginally by 0.1% in November, disappointing retail sales in December have raised concerns about a contraction in the economy at the end of last year.
Household Finances Take a Hit
Household perceptions about their current finances have plummeted at the fastest pace since August 2023, according to the survey. Financial wellbeing has taken a hit across all income levels, with high-earning households experiencing a negative sentiment for the first time in nearly a year.
Labour Market Woes
The survey reveals that households are feeling increasingly insecure about their jobs, with growth in workplace activity slowing sharply and income broadly stalling. The autumn Budget’s employment policy changes, including a £25bn increase in employer National Insurance, have been met with skepticism by businesses, which are warning of hiring freezes, reduced pay rises, and a shift to cheaper overseas staff.
Tax Rises and Labour Market Reforms
The government’s flagship tax rise, combined with a higher-than-expected 6.7% increase in minimum wage and Angela Rayner’s Employment Rights Bill, is expected to cost companies an additional £4.5bn in compliance. This has led to a growing concern about the labour market, with households feeling more vulnerable about their job security than at any point since September 2023.
Spending Cuts and Debt Burden
Consumers are rapidly cutting back on spending, with their appetite to buy expensive goods dropping at the fastest pace in a year and a half. Household debt burdens have risen for the third month in a row, as households struggle with the high cost of living and sluggish real income growth.
Gloomy Outlook for 2025
The January data paints a bleak picture for 2025, with falling household confidence adding downside risks to an economy that is already flatlining. As the UK teeters on the brink of recession, it remains to be seen how the government will respond to the growing economic challenges.
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