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UK Economy Recession as Rishi Sunak’s Crypto Hub Also Faces Turmoil

Last Updated February 15, 2024 2:47 PM
Shraddha Sharma
Last Updated February 15, 2024 2:47 PM
Key Takeaways
  • The UK officially entered a recession, affecting crypto market dynamics.
  • The financial regulator intensified crypto oversight with stricter licensing and advertising rules.
  • PM Rishi Sunak’s vision of a UK crypto hub faces obstacles as Labour Party intensifies attack 

The UK is grappling with an economic flux in Q4 2023, and the ripple effects would likely extend into the domestic cryptocurrency sector. The downturn can cast a shadow over the broader market and investor confidence.

The latest Office for National Statistics (ONS) data revealed that the UK economy slipped into a recession in Q4 2023. A technical recession is marked by two consecutive quarters of GDP decline.

In addition to the economic slowdown, the Financial Conduct Authority (FCA) has ramped up its regulatory oversight in the last year. The financial regulator has removed numerous financial and crypto advertisements, shifting towards tighter controls. Economic turmoil and regulatory crackdowns put Prime Minister Rishi Sunak’s ambitious plan to transform the UK into a global crypto hub under strain.

A Recession Takes Hold

The ONS confirmed that the UK’s GDP contracted by 0.3% in the final quarter of 2023, following a decline in the preceding three months. The contraction places the economy officially in a recession, despite marginal 0.1% growth over the entire year.

Finance minister Jeremy Hunt attributed the bleak forecast to soaring interest rates to contain inflation. However, the Chancellor of the Exchequer remains in an uncomfortable spot before the spring budget.

Meanwhile, the Bank of England’s (BoE) hesitancy to reduce rates until potentially the summer casts doubts on the government’s promise of economic growth.

The opposition claimed that Sunak’s plan is no longer working while dubbing this “Rishi Sunak’s recession.”

Regulatory Challenges for Crypto

The FCA’s recent report highlights ongoing struggles with cryptocurrency companies’ compliance with the UK’s new regulations. Since enforcing stricter advertising laws in October, the FCA  has issued 450 consumer alerts and taken action against illegal financial promotions in Q4 2023.

In 2023 alone, over 10,000 financial advertisements were reportedly withdrawn or amended. Meanwhile, the FCA continuously vet cryptoasset businesses, with only a small fraction receiving approval.

As per FCA’s registration statistics, of the 29 crypto applications received in the last 12 months, four firms received approval.

FCA
Summary of crypto applications | Source: FCA

The regulator stated in February, “We have rejected submissions that didn’t include key components necessary for us to carry out an assessment, or the poor quality of key components meant the submission was invalid.”

Sunak’s Crypto Hub Vision Faces Pressure

Prime Minister Rishi Sunak’s pledge as the Chancellor to establish the UK as a leading crypto hub is under pressure. The economic recession, combined with stringent regulatory measures, poses a challenge to attracting and retaining crypto firms.

Despite Sunak’s aspirations, the FCA’s  stringent application process has seen a low approval rate for crypto businesses, with the majority of applications being withdrawn or rejected. Fostering innovation and ensuring financial stability will be much of a balancing act for Sunal while the Labour Party raises criticism.

The coming months will be crucial in determining whether the UK can realize its crypto hub ambitions or if the current economic and regulatory environment will stifle the sector’s potential.

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