Economy

UK slid into recession in final months of last year

Jeremy Hunt
Jeremy Hunt: Budget statement next month

Britain fell into recession at the end of 2023 after the economy shrank by 0.3% in the final three months of the year, official figures show.

The economy shrank by 0.1% between July and September (Q3), so a second quarter of contraction means the UK is in technical recession. It showed zero growth between April and June (Q2).

However, GDP is estimated to have increased by 0.1% compared with 2022, the ONS said.

The data marks a week of crucial economic data for the Conservative government after inflation remained unchanged steady wage growth continued to weigh.

The figures are a blow to Prime Minister Rishi Sunak as he prepares for the general election this year and are likely to impact on Chancellor Jeremy Hunt’s Budget statement next month.

In a statement following release of the data, Mr Hunt said: “High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.

“But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low. Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”

The UK remains the only G7 nation yet to return to pre-pandemic employment levels.

Anna Leach, CBI deputy chief economist, said:  “The CBI’s most recent surveys suggest this year has started better than last year ended, with expectations for services and manufacturing in positive territory and the drag from higher interest rates expected to diminish.

“Better-than-expected real earnings growth will support consumers against the headwind of higher interest rates. But firms remain under pressure from higher borrowing costs, higher prices, weak demand and ongoing challenges recruiting the workers they need to grow and invest. 

“There are multiple growth opportunities across the UK economy this year. As we head towards the Budget in March, we’re looking for action to support labour market participation and investment so that opportunities in high-growth industries like net zero can be fully realised.”  

Shadow chancellor Rachel Reeves said that the UK falling into a recession has left Rishi Sunak’s promise to grow the economy “in tatters”.

The figures show household expenditure fell by 0.1% in real terms (adjusted for inflation), following a downwardly revised fall of 0.9% in Q3, as consumers cut back in the cost of living squeeze.

Export volumes fell by 2.9% in October-December, following a fall of 0.8% in July-September. The fall was driven by a 6.0% decline in services exports, which offset a 0.8% increase in goods exports.

Japan has also surprisingly slipped into recession after its economy contracted 0.1% in the three months to December, missing market expectations of growth of 0.3%.

The EU narrowly avoided recession in the second half of the year and Germany, its largest member, saw its output shrink by 0.3% in the final quarter, like the UK.

Sterling falls

Sterling dropped to fresh lows for the week after the GDP data was released.

The pound to euro exchange rate fell to 1.17 from 1.1710 in the minutes after the ONS said the UK economy shrank 0.3% quarter-on-quarter in the final quarter of 2023, which makes for two consecutive quarters of contraction owing to Q3’s shrinkage.

While the shrinkage was expected the figure was worse than the -0.1% reading the market expected and the pound to dollar rate dipped to 1.2558 from 1.2566.

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