The UK's economic crisis deepened Tuesday as railway workers went on strike, a key manufacturing indicator pointed to an accelerating downturn, and forecasters warned the country faces the deepest recession among advanced economies.
- The UK is headed for the deepest recession among advanced economies in 2023, economists have warned.
- The country is coping with high inflation aggravated by soaring energy prices and a labor shortage.
- Consumer confidence has collapsed while a manufacturing downturn gathers speed.
- A rail strike diusrupted transport Tuesday, with nurses and ambulance drivers also planning walkouts.
- The unpopular Conservative government has advocated austerity after tax cut plans cost former Prime Minister Liz Truss her job last fall.
The five-day rail strike paralyzed transport across the country and served as a preview of looming walkouts by nurses and ambulance drivers.
The strikes amplify pressure on an economy already hamstrung by a labor shortage and high inflation. The UK is on track to suffer the longest and deepest growth slump among the top industrialized economies in 2023, according to a Financial Times poll of analysts. The forecasts, compiled by Consensus Economics, point to a 1% decline in the UK's gross domestic product (GDP) in 2023, versus a drop of 0.1% for the Eurozone and growth of 0.25% in the US. UK economic performance also lagged in the second half of 2022.
"Britain is in stagflation—with rocketing inflation, negative growth, falling productivity and business investment," said Tony Danker, director-general of the Confederation of British Industry, a business lobbying group, last month.
Also Tuesday, data from S&P Global showed that British manufacturing activity fell to a 31-month low in December. "The UK manufacturing sector ended 2022 on a weak footing, with output, new orders and employment all falling at faster rates," the survey found.
Many forecasters expect economic malaise to persist as the Bank of England keeps interest rates elevated to fight inflation. AXA Investment Managers is estimating growth of 0.8% in 2024 after a 0.7% decline this year. The government's own forecasting office expects a 1.4% GDP decline this year, alongside a record drop in living standards.
Adding to the sense of economic calamity, consumer confidence has dropped below its 2008 lows. UK consumers have faced skyrocketing electricity prices as a result of the country's dependence on natural gas and insufficient gas storage capacity.
The Conservative government of Prime Minister Rishi Sunak has responded to the rapid economic decline with fiscal austerity. "I'm not going to pretend all our problems will go away in the new year," he said in a dour New Year message to the country.
Sunak became prime minister in October, succeeding Liz Truss, who lasted only 50 days in the top job. Her focus on tax cutting triggered a brief spike in UK bond yields and rare criticism from the International Monetary Fund before Truss reversed the policy.