UK GDP: Economy entered a recession at the end of 2023

The UK fell into a recession in the final three months of 2023, as the economy shrank unexpectedly

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The UK economy shrunk by 0.3% in the final quarter of 2023 between October and December, pushing the UK into a recession, the latest GDP data reveals.

This is despite data, which measures the value of goods and services produced, showing the UK economy grew by 0.1% annually in 2023. 

It follows a decline in December’s output by 0.1% and the economy shrinking by 0.1% between July and September, making this the second consecutive quarterly fall in GDP- which is considered to be a technical recession

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Alice Haine, Personal Finance Analyst at Bestinvest says this marks the “first downturn since 2020 when the country was reeling from the fallout of the COVID-19 pandemic.” 

The negative economic growth comes as the UK saw a 0.2% decline in the services sector, a 1% fall in production, and a 1.3% decline in construction output.

High-interest rates took its toll on household finances amid 14 consecutive interest rate hikes between December 2021 and August 2023 and four base rate freezes. 

The high cost of living and bad weather also contributed to a weaker economy. 

Haines adds: “The weak growth data will pile pressure on the Bank of England to cut interest rates sooner rather than later to bolster the economy, which has been heavily impacted by high inflation and still-high borrowing costs.”

What does a recession mean for the UK economy? 

"It’s now official, we’re in recession,” Ed Monk, Associate Director at Fidelity International says. 

As a result, negative growth will hit consumer confidence, resulting in less spending and more saving.

Haines says “It’s not all doom and gloom” though, as inflation holds steady at 4% (though double the government target) and wage growth continues to outstrip inflation

This may add pressure on the Bank of England to cut rates sooner and avoid a deeper economic crisis, but the outlook on interest rates is still uncertain.

Monk believes  “there’s little sign the Bank of England will cut rates yet,” and Haines says “the waiting game for rate cuts continues.”

We could see “the first BoE rate cut no sooner than the bank's June meeting,” says Matthew Ryan, Head of Market Strategy at financial services firm Ebury. 

And even though the latest GDP data shows the UK economy is technically in recession, analysts expect it to be short-lived. 

Vaishali Varu
Staff Writer

Vaishali has a background in personal finance and a passion for helping people manage their finances. As a staff writer for MoneyWeek, Vaishali covers the latest news, trends and insights on property, savings and ISAs.

She also has bylines for the U.S. personal finance site and Ideal Home, GoodTo, inews, The Week and the Leicester Mercury

Before joining MoneyWeek, Vaishali worked in marketing and copywriting for small businesses. Away from her desk, Vaishali likes to travel, socialise and cook homely favourites