'Rishi's recession' shows Sunak can 'no longer claim his plan is working'

15 February 2024 , 07:48

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The downturn has been dubbed 'Rishi's recession' by critics (Image: POOL/AFP via Getty Images)

Rishi Sunak's economic plans have been left "in tatters" after official figures showed the UK entered a recession, Labour said.

Shadow Chancellor Rachel Reeves said Britain "remains trapped in a spiral of economic decline" under Mr Sunak, whose plan is "not working". She accused the Prime Minister of being "completely out of touch with the realities on the ground" and said working people were paying the price for Tory failure.

The gloomy update from the Office for National Statistics (ONS) showed gross domestic product (GDP), a key measure of economic activity, dropped by 0.3% in the final three months of last year. It comes only a day after Mr Sunak claimed the economy had "turned a corner". It is also another blow to Mr Sunak's credibility, as he made growing the economy one of his five key pledges last January.

Speaking at a press conference in Westminster, Ms Reeves said: "Rishi Sunak claims that he has a plan, but the plan is not working. He claims the economy has turned a corner, but the economy is shrinking.

Rachel Reeves said the PM can no longer credibly say his plan is working (PA)

"He claims he doesn’t want to take us back to square one, but we are going backwards. The Prime Minister’s claims are in tatters. The cornerstone of his leadership has been shattered.

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"The promise to grow the economy has been broken. Our economy is now smaller than when Rishi Sunak entered 10 Downing Street in 2022. Having spent years in the slow lane, Rishi Sunak has now put our economy into reverse." She added: "This is Rishi’s recession and it is the British people who will pay the price."

Ms Reeves accused Jeremy Hunt of giving "dangerous" briefings about what could be in next month's Budget as reports emerged he was considering slashing public services to fund tax giveaways. She said: "It is dangerous and it is very misguided, and I would urge him to stop this because it creates the uncertainty that is that we really don’t need."

Asked if Labour would commit to not cutting public spending, she said: "I do recognise that our public services are under huge pressure - unlike perhaps the Conservatives do - which is why I said there does need to be an immediate injection of cash into our public services."

Ms Reeves refused to say if Labour would back potential tax cuts in the Budget, saying: "That depends on the state of the public finances and the projections set out by the OBR. I objected to the increases in National Insurance when Rishi Sunak tried to increase them as Chancellor because I thought it was wrong to increase taxes on working people in the middle of a cost of living crisis."

She said wanted lower taxes for working people to be lower but said she would "never make a promise" if she could not say where the money would come from.

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Meanwhile, Lib Dem leader Sir Ed Davey said: "Rishi's recession has savaged the British economy by decimating growth and leaving families to cope with spiraling prices. Years of Conservative chaos and a revolving door of Conservative Chancellors has culminated in economic turmoil.

"It's hardworking Brits forced to pick up the tab for this mess, through high food prices, tax hikes and skyrocketing mortgage bills. This year the country will have the chance to kick out this incompetent and out of touch government once and for all."

A recession is defined as two consecutive quarters - or two three-month periods in a row - where gross domestic product (GDP) declines. GDP is a measure of the size and health of the economy. In an update today from the Office for National Statistics (ONS), it was revealed GDP shrank by 0.3% between October and December 2023. This followed a decline of 0.1% between July and September 2023, therefore meeting the technical definition of a recession.

Mr Hunt said low economic growth was "not a surprise", but said the UK must stick to the Government's plan. He said: "High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high - so the Bank of England can bring inflation down - low growth is not a surprise.

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"But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low. Although times are still tough for many families, we must stick to the plan - cutting taxes on work and business to build a stronger economy."

In broadcast interviews, he hinted at his preference for tax cuts, suggesting that countries with "lighter taxes" did "tend to grow faster". He added: "But I would only cut taxes in a way that was responsible, and I certainly wouldn't do anything that fuelled inflation just when we are starting to have some success in bringing down inflation."

Asked if cuts could come at the expense of public service budgets, the Chancellor said: "I am a passionate supporter of the NHS and all our public services, but in the long run the best thing that I can do as Chancellor for the NHS is to make sure that our economy is growing healthily. So what you will see in everything I do in the Budget on March 6 is prioritising economic growth."

The announcement has been branded a "wake up call" for the Government. Pranesh Narayanan, research fellow at the Institute for Public Policy Research (IPPR), said: "This time last year, the Prime Minister pledged to get the economy growing but today's data, showing a mild technical recession, shows a stark lack of progress.

"Chronic underinvestment in hospitals, schools, net zero and infrastructure has created a crumbling public realm and a broken economy. This should be a wake-up call that spurs the Government to prioritise public investment rather than irresponsible tax cuts. Let's fix our problems now rather than storing them up for later."

The decline between October and December 2023 was bigger than had been expected by analysts. Most economists had been forecasting the economy to have shrunk by 0.1%. However, the data is just an estimate at the moment and can be revised at a later date.

Dave Burke