UK economy slipped into recession at the end of last year

It's been confirmed this morning that the UK economy slipped into a recession at the end of 2023.

It's after the economy shrank by 0.3% in the final three months of the year according to data from the Office for National Statistics.

It marks the first time the UK has entered recession since the first half of 2020, when the initial Covid-19 lockdown sent the economy plunging into reverse.

It's a bigger shrinkage that many economists forecast, with most expecting a 0.1% decline in gross domestic product (GDP) between October and December.

Liz McKeown, ONS director of economic statistics, said: “Our initial estimate shows the UK economy contracted in the fourth quarter of 2023.

“While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat.

“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth.”

Anna Leach, deputy chief economist at the Confederation of British Industry (CBI), said: “December’s GDP number suggests that the UK narrowly fell into a technical recession in the second half of the year. This brings to a close a pretty stagnant year for UK economic growth.

“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.”

What is a recession?

A technical recession is defined as two or more quarters in a row of falling GDP.

Experts have said that it is a recession in the “mildest of senses” and is likely to be short-lived, with many preferring to describe the UK’s economy as having “stagnated”.

Bank of England governor Andrew Bailey has also signalled that a recession would likely be brief, telling a Lords committee on Wednesday that the UK economy was beginning to pick up.

Mr Bailey told the House of Lords Economic Affairs Committee: “In our February Monetary Policy Report, it was in the balance – we didn’t have a recession in the forecast, but it is at best flat, in the view we took.

“It wouldn’t take much to tip it either way, frankly.

“Going forward, and I think this is in some ways more significant, we are now seeing some signs of the beginning of a pick-up in some of the surveys, for instance … we’ve got a modest pick-up this year which continues thereafter.”

What does this mean for the Government?

The news comes as a blow to Prime Minister Rishi Sunak who has promised to grow the economy as one of his five priorities.

Jeremy Hunt said low economic growth was “not a surprise”, acknowledged tough times for many families, but insisted the UK must stick to the Government’s plan.

Reacting to the latest GDP figures the Chancellor 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.”

How has Labour responded?

Responding to the news the UK has entered a recession, the shadow chancellor said: “Rishi Sunak’s promise to grow the economy is now in tatters.

“The Prime Minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off.

“This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain."

What do the Lib Dems have to say?

The Lib Dems accused Rishi Sunak of having “savaged the British economy”.

Responding to the news the UK has entered recession, Liberal Democrat leader Sir Ed Davey said: “Rishi’s recession has savaged the British economy by decimating growth and leaving families to cope with spiralling prices.

“Years of Conservative chaos and a revolving door of Conservative chancellors has culminated in economic turmoil.

“It’s hardworking Brits forced to pick up the tab for this mess, through high food prices, tax hikes and skyrocketing mortgage bills.

“This year the country will have the chance to kick out this incompetent and out of touch Government once and for all.”

The UK’s latest GDP figures should be a “wake-up call” for ministers, a left-leaning think tank has said.

Pranesh Narayanan, research fellow at the Institute for Public Policy Research (IPPR), said: “This time last year, the Prime Minister pledged to get the economy growing but today’s data, showing a mild technical recession, shows a stark lack of progress.

“Chronic underinvestment in hospitals, schools, net zero and infrastructure has created a crumbling public realm and a broken economy.

“This should be a wake-up call that spurs the Government to prioritise public investment rather than irresponsible tax cuts. Let’s fix our problems now rather than storing them up for later.”

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