A copy of the Evening Standard outside the Bank of England in the City of London after data showed the UK economy slipped into recession at the end of 2023.
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LONDON – The British economy slipped into a technical recession in the final quarter of last year, preliminary data showed on Thursday.
The Office for National Statistics said Britain’s gross domestic product (GDP) shrank by 0.3% in the last three months of this year, falling for the second consecutive quarter.
Although there is no official definition of recessionTwo consecutive quarters of negative growth are widely considered a technical recession.
The consensus forecast among economists polled by Reuters for the October-December period was -0.1%.
All three major economic sectors contracted in the fourth quarter, with services output falling by 0.2%, production by 1% and construction output by 1.3%.
Compared with 2022, UK GDP is expected to grow by only 0.1% for the whole of 2023. Output shrank 0.1% in December.
UK Finance Minister Jeremy Hunt said high inflation remains the “biggest obstacle to growth” as it forces the Bank of England to keep interest rates steady and hampers economic growth.
City of London financial district skyline view.
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“But there are signs that the UK economy is turning a corner; forecasters agree that growth will strengthen in the coming years, with wages rising faster than prices, mortgage rates falling and unemployment remaining low,” he added.
Inflation in the UK has fallen significantly but remains well above rates in other economies and the Bank of England’s 2% target, squeezing household finances. The overall consumer price index increased 4% year-on-year in January.
Notably, gross domestic product per capita, adjusted for population growth, contracted 0.6% in the fourth quarter after falling 0.4% in the first three months, and fell further every quarter last year. For all of 2023, seasonally adjusted GDP per capita shrank by 0.7%.
A ‘shallow and short-lived’ decline
Marcus Brookes, chief investment officer at Quilter Investors, said the data likely suggest the recession will be a “potentially shallow and short recession that may not reflect the true state of the economy” and that the economy will Experience “slow recovery in 2024.”
“UK GDP contracted in both December and the fourth quarter of 2023, mainly due to persistently high inflation, structural weakness in the labor market, slow productivity growth and adverse weather conditions,” Brooks said in an email.
“These factors have affected the performance of services and construction, which are the main drivers of the UK economy.”
He noted that some of these hurdles are temporary and are already beginning to ease, with inflation data for January falling below forecasts for a re-acceleration.
Brooks added: “We expect inflation to fall over the coming months, which could ease pressure on UK households and support the recovery of the consumer-driven economy.”
“The key indicator to watch is inflation in the services sector, which accounts for the majority of UK economic activity and employment, reflecting the strength of wage growth and consumer demand that will be critical to the UK’s recovery.”
Neil Birrell, chief investment officer at Premier Miton Investors, said Thursday’s data and weaker-than-expected inflation data “may raise concerns about the strength of the economy in the coming year.”
“Most sectors of the economy are weak, but optimists would point to significant scope for rate cuts if current inflation and growth trends accelerate.”
