This week, it was confirmed that the UK economy entered recession in the fourth quarter of 2023

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The Office for National Statistics announced last week that the economy contracted by 0.3 per cent in the final quarter of 2023 after a 0.1 per cent fall in the third quarter. These two consecutive quarters of negative growth mean the UK fell into a technical recession in the second half of last year.

Much of the commentary in recent days has highlighted the likelihood that this will be a short and shallow recession. Indeed, the labour market remains strong, with an unemployment rate of 3.8 per cent and 932,000 job vacancies. Leading indicators, such as consumer confidence surveys, are showing positive signs. The UK economy is unlikely to be on track for anything like the carnage of previous recessions, such as the 2008 financial crisis.

That does not, however, mean the news has no immediate or longer term policy implications.

To start, the primary reason for the slump is higher interest rates to fight inflation. This was necessary but appears to have been overdone in recent months. The Bank of England has ignored the warning signs about the slowdown in monetary growth, instead opting to maintain higher rates. According to the IEA's Shadow Monetary Policy Committee, the low growth and falling inflation should mean an earlier rate cut.

The recession news also comes as the Chancellor is formulating the March Budget. The reports this week have not been reassuring for low tax advocates. Lower growth and higher borrowing costs for the government are expected to mean less ‘headroom’ for tax cuts. Plans to cut income tax or abolish inheritance tax appear less likely to come to fruition.

But this doesn’t mean tax cuts can or should be entirely ruled out. It is absurd that the government's fiscal policy is being determined by week-to-week changes in Office for Budget Responsibility forecasts based on fluctuating bond yields. This hardly feels like a serious way to manage the nation's finances. The government has got itself in this mess — despite the desperate need to get down the UK’s historically high taxes — because of an unwillingness to make difficult, potentially unpopular decisions on spending.

Ultimately, what matters is not whether the economy slightly shrunk in the second half of last year but that it has barely grown for the past 15 years. In other words, the economy may not be crashing, but it continues to stagnate.

The challenge for the government – and opposition – is to explain what can be done to jumpstart entrepreneurial activity, attract investment and get people working more productively. A pro-growth agenda could not be more important.

Matthew Lesh

IEA Director of Public Policy and Communications
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Recession piles pressure on Jeremy Hunt for 'targeted tax cuts' in Spring Budget ([link removed])

Economics Fellow Julian Jessop, The Daily Express ([link removed]) , The Scotsman ([link removed]) , The Independent ([link removed]) , The i ([link removed]) , Investment International ([link removed]) , Yahoo! ([link removed]) , MSN ([link removed])

New impetus… As Julian argued this week ([link removed]) , confirmation that the UK economy went into recession makes policy changes essential - from both Downing Street and Threadneedle Street.

Interest rates will fall quickly to avoid deflation threat ([link removed])

Julian Jessop, The Daily Telegraph ([link removed]) , The Guardian ([link removed]) , The Daily Express ([link removed])

Scant consolation… There was some positive news this week, with January’s inflation rate coming in at a lower-than-expected four per cent.
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UK Recession 2024 | IEA Podcast ([link removed])

Matthew Lesh & Julian Jessop, IEA YouTube ([link removed])

What next?… Attention now turns to what changes can be made to get the economy back on track.


** Government pushes ‘no-fault eviction’ ban
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This week, Housing Secretary Michael Gove confirmed that the government intends to press ahead with its ban on so-called ‘no fault evictions’. This is the process by which landlords evict tenants after a fixed-term rental agreement has ended.

Far from improving security for renters, this policy is likely to reduce the supply of rental properties and artificially hike prices.


** Why no-fault evictions shouldn’t be banned ([link removed])
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Head of Lifestyle Economics Christopher Snowdon, The Spectator ([link removed])

14 years… From expanding the frontiers of the nanny state to attacking property rights, the government looks set to leave a bleak legacy.
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** The Tories will come to regret their housing short-termism ([link removed])
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Editorial Director Kristian Niemietz, The Daily Telegraph ([link removed])

Actively counterproductive… Banning no-fault evictions will come with a raft of unintended consequences.

Landlords are being punished through no fault of their own ([link removed])

Communications Officer and Linda Whetstone Scholar Reem Ibrahim, CapX ([link removed])

Just build… Piling more red tape on the market is not going to fix the fundamental problem: a shortage of houses.
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IEA Latest.
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Should UK council tax be based on household income? ([link removed])

Executive Director Tom Clougherty, The Times ([link removed])

Repeal and replace… Council tax is still levied based on home valuations from 1991. An updated and better designed system is long overdue.
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Ofcom has quietly taken advantage of Brexit ([link removed])

Matthew Lesh, CapX ([link removed])

Under the radar… The government has thus far refused to seize most of the key opportunities created by Brexit. Perhaps the tide is turning.
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Immigration: a pragmatic proposal ([link removed])

Kristian Niemietz, IEA Blog ([link removed])

An inconsistent triad… Can any border reform satisfy the left, right, and libertarians?
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SNP ignored financial warnings - and sparked the great tartan tax exodus! ([link removed])

Executive Director Tom Clougherty, The Daily Mail ([link removed])

A golden opportunity… With Scots fleeing Holyrood’s high taxes, the Scottish government could flip the situation on its head through tax competition with England.
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** What the “PopCons” get wrong ([link removed])
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Kristian Niemietz, IEA Blog ([link removed])

The blame game… Paralysed institutions do play a role in the UK’s dysfunction, but elected politicians have to take responsibility for failing to tackle them.

IEA Insider.


** IEA Book Club Event with Stephen Davies ([link removed])
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Date: Tuesday 20th February

Time: 17:30 – 19:30

Location: IEA (2 Lord North Street, Westminster, London, SW1P 3LB)

The Covid-19 pandemic was, and remains, a global disaster – claiming countless lives and wreaking economic havoc that still reverberates today. But it could have been worse. Much worse.

In his new book ([link removed]) , IEA Senior Education Fellow Stephen Davies contends the planet ‘dodged a bullet’ this time around. But he warns this was no black swan event: The conflicts in the Ukraine and the Middle East already threaten global stability. And the next existential threat to mankind could happen much sooner than we think.

He analyses the potential catastrophes – from nuclear war and sudden climate change to further pandemics, the misuse of Artificial Intelligence and more – that could jeopardise our planet and its people.
RSVP (mailto:[email protected]?subject=IEA%20Book%20Club%20with%20Stephen%20Davies&body=Please%20may%20I%20RSVP%20for%20the%20'Apocalypse%20Next'%20Book%20Club%20event%20on%2012th%20February%3F)
Buy a copy ([link removed])


** Meritocracy, Personal Responsibility, and Encouraging Investment: Lessons from Singapore’s Economic Growth Miracle ([link removed])
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After independence from Malaysia in 1965, Singapore was one of the world’s poorest nations. Today, it is one of the wealthiest having become a global economic powerhouse. Low taxes and free markets have played a central role in making this happen.

The final publication from the Realities of Socialism project charts Singapore’s rise from poverty to prosperity and analyses the policies underpinning it.
Read a copy ([link removed])
About Realities of Socialism ([link removed])
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