UK falls into technical recession - ONS

The UK fell into recession at the end of 2023, official data showed on Thursday, after a bigger-than-expected contraction in GDP in the fourth quarter.

According to provisional estimates from the Office for National Statistics, GDP contracted by 0.3% in the three months, following a 0.1% decline in the third.

A recession is defined as two consecutive quarters of negative growth.

Analysts had been expecting another quarter of no growth, although most had been looking for a smaller contraction, of 0.1%.

Over the entirety of 2023, however, the ONS said GDP edged up by 0.1% year-on-year.

During the fourth quarter, there were falls in all three main sectors. Construction output slid 1.3%, production by 1% and services by 0.2%.

On a monthly basis, GDP fell by 0.1% in December, compared to growth of 0.2% in November - revised down from an 0.3% improvement - and a 0.5% fall in October, which was revised down from a 0.3% fall.

Thursday’s GDP data will be a blow to the government, which just over a year ago promised to grow the economy as one of Rishi Sunak’s five pledges.

At the time, Downing Street said the pledge would be met if the economy was bigger the in fourth quarter of 2023 than it was in the third.

Danni Hewson, head of financial analysis at AJ Bell, said: “Constrained budgets kept us from hitting the high street in December, with retail sales figures down to a level not seen since the lockdowns of January 2021. A series of storms also took their toll.

“That said, recession is merely nibbling at the edges of the economy and there are already signs that this slump will go down in the record books as the shortest, shallowest recession to date.”

As at 1045 GMT, the FTSE 100 was largely unmoved, while sterling had dipped only slightly.

Richard Hunter, head of markets at Interactive Investor, said markets were only marginally impacted “not only due to the better-than-expected inflation number [on Wednesday] but also because some of the UK market’s recent lethargy has been based on anaemic growth over recent months.

“The indicator is also akin to driving in the rear-view mirror and as such does not indicate the current state of play.”

Martin Beck, chief economic advisor to the EY Item Club said: “Time lags between changes in monetary policy and their effect on the economy mean rate cuts will take time to boost growth. And those same lags mean the effect of past rises in borrowing costs is still biting.

“On balance [we] think the economy will steadily gather momentum. However, given the weak starting point for this year, that trend will be more apparent in terms of calendar year growth in 2025 compared to 2024.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “It’s overly dramatic to label the decline in economic activity a recession, given that employment continued to rise, real wages rebounded and measures of business and consumer confidence returned to levels consistent with rising activity by the end of the year.

“The drop in GDP in the fourth quarter was driven partly by a 0.3% decline in real government expenditure, linked to an increase in strikes in the health sector.”