What is a recession?

The word ‘recession’ is feared by many. It brings up worries about job losses, repossessions, and financial struggle. Most people know that recession broadly means “bad times for the economy”, but its strict definition is a bit more complicated.

A technical recession can be defined as when the economy has negative GDP growth for at least two consecutive quarters (six months).

The last time the UK was in a technical recession was in late 2023. That may come as a shock to some in the UK who have felt like the economy has been poor for some time.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

While it is true that the economy has not been growing very much recently, the UK is not in recession as quarterly GDP growth has not turned negative for quite some time.

However, more commentators are now warning that the UK is at risk of a recession due to the economic shock of the Iran war, which is set to hit growth and send inflation soaring again.

What does the oil crisis mean for you? | MoneyWeek Talks - YouTube

Watch On

This will be particularly frustrating for the government, as the latest GDP statistics showed that the economy grew by 0.6% in the first quarter of 2026 after years of weak growth.

What is a recession and how is one measured?

A recession is a situation where a country’s economy contracts (shrinks) instead of grows over two consecutive quarters.

Economic growth is widely calculated by gross domestic product (GDP), an internationally recognised yardstick that aims to measure the size and health of a country's economy in a way that can be compared to other nations.

In the UK it is reported monthly by the ONS, the official statistics body.

In simple terms, GDP is calculated by adding together total consumption, investment, government spending and net exports. For more detailed information on how the metric is calculated, read our GDP guide.

The ONS performs this calculation every month by sending out surveys to thousands of consumers and businesses. It also uses government spending data.

It then works out whether GDP has increased or decreased in a given period of time. If GDP grows, it suggests more money is moving around the economy and the country is likely to be getting richer. But, when GDP falls, it tends to mean the reverse is true.

As such, when GDP decreases to the extent that the country drops into a recession, it usually leads to higher unemployment, lower spending across the economy and a drop in business activity. In short, life gets harder for individuals and businesses alike.

Why is a recession bad news for the economy?

In the orthodox view of economics, recessions are bad news. This is because they usually lead to less spending in the economy by individuals and businesses.

With less money moving around and fewer purchases being made, firms will likely see declining sales. That means firms will have less money to spend on things like hiring new staff or investing in better technology.

If bad enough, firms may decide to lay off some of their existing staff or end up going out of business. This can have a downward spiral effect on the rest of the economy.

As companies lay more people off, unemployment rises. As fewer people have jobs, spending falls. And as spending falls, companies see their revenues decline and have to cut costs.

Just the possible indication of a recession can send a chill through the business community. Few firms want to commit to large investments if they expect demand is set to drop.

Lower spending also has an impact on the public finances. For example, with lower revenues, businesses will pay less tax, and with higher unemployment, individuals will also pay less tax.

Smaller tax revenues mean the government has to either cut back on spending (impose austerity measures) or borrow more money to fund public services.

When was the UK last in a recession?

The UK was last in a recession in late 2023, and it lasted exactly two quarters. GDP growth fell by 0.1% in the third quarter of the year and another 0.3% in the fourth.

Thankfully, the economy quickly recovered in the first quarter of 2024 when the economy grew by 0.7% and 0.6% in the second quarter.

The reason some people may feel like we are currently in a recession is because the economy has not grown very much since that economic recovery in 2024.

In 2025, the UK economy grew by just 0.1% in Q2 and 0.2% in Q3 and Q4. That incredibly slow growth means that while the economy is not shrinking, it is certainly not expanding very quickly.

With slow growth sweeping the country, commentators are regularly warning that the UK is on the brink of recession. Meanwhile, high inflation and unemployment are also stoking fears that we could enter an era of ‘stagflation’.

Although recessions are spoken about quite frequently, they are actually a relatively rare occurrence. Over the last 50 years, the UK has seen an average of just over one per decade, although these have varied widely in their depth, longevity, and cause.

For example, in the 21st century, the UK saw the ‘Great Recession’ in 2008 during the great financial crisis, which lasted five quarters and took years to recover from, and the Covid-19 recession in 2020 which lasted just two quarters.