In February, the UK economy stagnated and there was no GDP growth, according to the latest official data. Many industries have been negatively impacted by civil sector strikes and low energy use. With thousands of workers walking out during the month-long teachers' and civil service strikes, this was one of the largest drags on GDP.

Economic stagnation is a protracted period of weak economic growth (traditionally measured in terms of GDP growth). And whilst the recent 2.4% expansion in the construction industry, brought on in part by improved weather conditions, new projects, and repairs, this positive step was countered by the fall in the services sector. 

Despite the dismal announcement, where the Office for National Statistics (ONS) revealed GDP showed 0.0% growth in comparison to the forecasted 0.1%, Chancellor Jeremy Hunt said that the economic picture is "brighter than expected." 

And the stagnation in the UK economy makes business owners fearful. 

Finbri’s survey of 843 business owners found that economic stagnation has 73.78% of business owners Strongly concerned (42.23%) or Concerned (31.55%).

Finbri, a bridging finance broker, comments: “The flatlining of the UK economy is clearly a major issue for business owners across the UK with three-quarters of business owners worried about the state of the economy. 

“The UK has lurched from one major period of uncertainty to another and it’s got investors and business owners alike spooked. The uncertainty is fuelled by micro and macro issues from Brexit, the pandemic, civil sector strikes, the increasing cost of living, unprecedented inflation, and continuous base rate hikes to recent tax and regulatory changes. Business owners, investors and the general population all have one thing in common - they don’t like uncertainty.” 

As the UK economy continues to flatline, business owners are becoming increasingly concerned with its potential impact on their businesses and livelihoods. Business owners across the nation are now taking steps to protect their investments and reduce the risk of further loss. 

What has caused the UK economy to stagnate? 

Industrial action and high inflation stymied service and production activity in February. 

With disputes mostly over pay, hundreds of thousands of workers have been taking part, or will take part, in strikes across the UK. The strikes are taking place with unions calling for wage rises to keep up with rising prices. Amongst those striking are nurses, ambulance workers, junior doctors, teachers, rail workers and civil servants.

Measuring the impact of strikes can be complicated, but it’s understood travel disruption will change worker behaviours and teacher strikes can prevent parents or guardians from working in order to provide childcare. Disruptions to postal services can also impact how consumers purchase goods. With services and industrial production impacted, strike action has played a part in the recent UK economic stagnation.

In addition to union strikes, inflation has been a key factor in the stagnation. Wages are not keeping up with the rate that prices for goods and bills are increasing and households are having to buy fewer things and spend less to cope with increasing monthly bills.

Economic stagnation increases concerns amongst business owners

The effects of the UK economy's stagnation has caused serious concern among business owners, with three-quarters of them expressing worry about its impact on their operations. 

There are few economic indicators that affect a business’ success:

Inflation: Rising prices can put pressure on businesses to raise their prices, but if the demand for their products or services doesn’t keep up, this can cause a decrease in profits. 

UK inflation only dipped to 10.1% in April, with business owners facing the consequences of high rates and  lack of consumers' discretionary spending. It’s no wonder 59.55% of respondents said they were in some way concerned about rising costs.

Interest rates: Increasing interest rates can make it more expensive for businesses to borrow money, pushing up their costs and reducing their profits.

Business owners in the UK have voiced concern over rising interest rates, which they believe will significantly impact their bottom line. Businesses may struggle to make financial repayments as a result of increased borrowing costs, which will reduce their net profit or loss.

Consumer confidence: The level of consumer optimism about the status of the economy is measured by consumer confidence. Consumers with higher levels of confidence are typically more eager to spend money, however, with 55% of consumers reducing their non-essential spending - businesses are likely to suffer from the lack of consumer spending. 

The lack of growth in the UK economy has sparked fears of a recession and has left many business owners uncertain about the future. 

The UK is anticipated to be the only major industrialised nation, and the only G7 economy, to see its economy shrink. The IMF has predicted that the UK economy is set to contract 0.6%, as a result of rising rates. With further teaching strikes planned by the NEU in April and May, it begs the question of whether the UK economy will continue to flatline. 

Is a recession on the cards for the UK?

Whilst ONS data shows the economy grew by 0.1% to confirm that the UK economy avoided falling into recession at the end of 2022, the economic stagnation seen in February has led many to wonder if a recession is on the cards for the UK. The OBR, which offers the government impartial advice, now anticipates a 0.2% decline in the UK economy in 2023 but does not foresee declines in two consecutive three-month periods - suggesting the UK will avoid a recession this year. With sky-high inflation and ongoing industrial action, there is still a great deal of uncertainty surrounding the country's economic future. 

It’s too early to tell whether the UK will enter a recession, but the stagnation seen in February has certainly caused concern amongst business owners.