UK enters ‘technical recession’ as economy shrinks for two consecutive periods

The UK officially entered into a technical recession at the end of 2023, with the latest figures from the Office for National Statistics (ONS) revealing a 0.3% contraction in Gross Domestic Product (GDP) during the fourth quarter (October to December).

This downturn follows a 0.1% fall in the third quarter (July to September), marking two consecutive quarters of negative growth, the standard definition of a recession.

Despite these quarterly declines, the UK’s economy showed a marginal increase of 0.1% across 2023 compared to 2022, offering a glimmer of resilience amidst challenging economic conditions.

The ONS’s detailed breakdown for the fourth quarter indicates contractions across all main sectors: services fell by 0.2%, production by 1.0%, and construction output experienced a significant drop of 1.3%.

The ONS data suggests a complex economic landscape, where growth in certain areas like hotels, and rental of vehicles and machinery, attempts to balance out the declines in others, particularly manufacturing, construction, and wholesale sectors.

Craig McLaren, Head of National Accounts at ONS, emphasised the importance of considering the broader economic picture rather than focusing solely on the term ‘technical recession.’

He noted, “Our initial estimate shows that the UK economy shrank in the fourth quarter of 2023 by 0.3%. While we’re now in what some would call a technical recession, it’s crucial to view the economy’s performance over the past year as broadly flat.”

McLaren also highlighted the underperformance in health and education sectors more than initially estimated, with early indicators suggesting contractions in December. However, declines in retail and wholesale were somewhat mitigated by growth in computer programming and manufacturing.

The ONS also said it is important to note that these figures are preliminary and subject to revision as more detailed data becomes available.

Responding to today’s GDP figures, TUC General Secretary Paul Nowak said:

“The UK economy is in dire straits. After years of Tory stagnation, we are now in technical recession.

“The Conservatives’ economic failures are hitting jobs and living standards. With household budgets at breaking point, spending is down and the economy is shrinking. At the same time our crumbling public services are starved of much-needed funding.

“After being in power for 14 years, the Tories have driven our economy into a ditch and have no idea how to get out.

“It’s time for a government with a serious long-term plan and strategy for renewal, to revive our economy and sustain growth into future.”

Ben Francis, FSB Wales Policy Chair, said: “The news of a technical recession will come as no surprise to businesses in Wales who have now been facing years of sticky inflation and rising interest rates.

Just as the cost of doing business crisis shows no sign of easing, small firms in Wales are preparing for a business rates hike, as the relief put in place to support firms is reduced in April. This leaves small business in Wales paying more than businesses across the border, adding additional financial stress to already strapped businesses.

99.3% of businesses in Wales are small to medium sized enterprises. The only way through a recession, and back towards a thriving economy is by supporting the very businesses that make up the majority of enterprises here in Wales and employ the vast majority of people. We are therefore urgently calling on Welsh Government to reconsider the decision to cut business rates relief, and instead get behind businesses on the road to growth.”