LONDON — Initial data revealed on Thursday that the United Kingdom’s economy entered a technical recession in the last quarter of the preceding year.
According to the Office for National Statistics, the UK’s gross domestic product contracted by 0.3% in the final three months of the year, marking the second consecutive quarterly decline. While there isn’t an official definition of a recession, two consecutive quarters of negative growth are widely considered indicative of a technical recession.
Economists surveyed by Reuters had forecasted a consensus of -0.1% for the October to December period.
All three main sectors of the economy experienced contraction in the fourth quarter, with the ONS reporting declines of 0.2% in services, 1% in production, and 1.3% in construction output.
For the entire year of 2023, the British GDP is estimated to have grown by a mere 0.1%, compared to 2022. In December alone, output shrank by 0.1%.
U.K. Finance Minister Jeremy Hunt attributed the persistently high inflation as “the single biggest barrier to growth,” as it compels the Bank of England to maintain firm interest rates, hindering economic growth. However, he expressed optimism, stating that there are signs the British economy is turning a corner, with forecasters anticipating strengthened growth over the next few years.
While inflation has decreased significantly in the UK, it remains above the Bank of England’s 2% target. The headline consumer price index for January recorded a year-on-year increase of 4%.
Notably, GDP per capita, adjusting for population growth, contracted by 0.6% in the fourth quarter and fell further through each quarter of the year. Over the entirety of 2023, seasonally-adjusted GDP per head shrank by 0.7%.
Marcus Brookes, Chief Investment Officer at Quilter Investors, suggested that the recession may be “shallow and short-lived,” not accurately reflecting the true state of the economy, which he believes will experience a “muted recovery” throughout 2024. He pointed to persistently high inflation, labor market weaknesses, low productivity growth, and adverse weather conditions as factors affecting the performance of key sectors.
Neil Birrell, Chief Investment Officer at Premier Miton Investors, noted that the weaker-than-expected inflation data and Thursday’s GDP figure might raise concerns about economic strength in the upcoming year. However, he acknowledged that the availability of scope to cut interest rates could be viewed optimistically if inflation and growth trends continue.
