Monthly GDP growth of the UK 2020-2023

The UK economy grew by 0.2 percent in September 2023, after growing by 0.1 percent in the previous month. Since the huge 20.9 percent decline in GDP in April 2020, the UK economy has gradually recovered and is now 0.2 percent larger than it was prior to the COVID-19 pandemic. After the initial recovery from the pandemic however, the UK economy has effectively flatlined, fluctuating between low growth and small contractions since January 2022.

UK and Germany the worst-performing G7 economies

Along with Germany, the UK economy is expected to decline in 2023, the only two economies in the G7 to do so. When compared to their pre-pandemic economies, the UK and Germany have also suffered the worst economic impact, with their first quarter 2023 GDP 0.5 percent smaller than at the end of 2019. By comparison, the U.S. economy is 5.4 percent larger, while Eurozone GDP is 2.5 percent larger. High inflation in the UK and Germany is also anticipated to be more persistent than in other G7 countries. For 2023 an annual inflation rate of nine percent is forecast for the UK, compared with 7.2 percent for Germany, and 5.2 percent or lower for the rest of the G7.

Cost of living crisis ongoing in 2023

This low economic growth coupled with high inflation has fueled the worst cost of living crisis in a generation in the UK. Although inflation has finally started to fall after reaching a peak of 11.1 percent in October 2022, prices are still rising at a rapid rate. Furthermore, while increases in energy prices are slowing somewhat, food prices were still rising rapidly in 2023. As of April 2023 for example, food inflation was 19 percent, compared with 12.3 percent for housing and energy costs. With wages struggling to keep pace with inflation, UK consumers have seen a significant fall in their living standards in recent months. Real household disposable income fell in 2022/23 and is expected to again in 2023/24, before growth returns in 2024/25.