Causes of the UK Recession (Growth Concepts)

Question

In 2023, the United Kingdom faced rampant worker strikes in the education, healthcare, and public services sectors. Additionally, as news stations sensationalise reports of rising cost of living, consumer spending has slowed down in recent months. The UK government warns of impending recession.

Using economic growth concepts, explain what caused the recession in the UK. [10]

Answer

A recession is a period of negative economic growth, conventionally two or more consecutive quarters of falling real national output. This essay explains how two features of the UK’s situation — the worker strikes and the slowdown in consumer spending — caused recession, the first through negative potential growth and the second through negative actual growth.

Worker strikes — a labour shortage and negative potential growth. Rampant strikes across education, healthcare and public services reduce the quantity of labour actually employed. With a key factor of production withdrawn, the economy’s productive capacity falls, shifting long-run aggregate supply left from AS₀ to AS₁ — negative potential growth. Because the UK was operating close to full capacity, this fall in capacity lowers real national output from Y₀ to Y₁, a movement consistent with recession.

Sensationalised cost-of-living rise — falling consumer spending and negative actual growth. The sensationalised reporting of rising living costs erodes consumer confidence, so consumers become less willing to spend; and striking workers, earning no income, see their disposable income fall, so they become less able to spend. Consumption (C) falls, and since it is a component of aggregate demand, aggregate demand falls from AD₀ to AD₁. Through the reverse multiplier effect, this initial fall is amplified into a larger fall in real national income, from Y₁ to Y₂ — negative actual growth.

Consolidation. Negative potential growth and negative actual growth occur together: capacity contracts while demand-led output falls through the multiplier. Real national output falls across both channels, and the economy enters recession.