UK slips into recession after economy shrank 0.3% in final months of 2023, with country 'stuck in low-growth trap’
15 February 2024, 07:11 | Updated: 15 February 2024, 08:09
The UK economy shrank by 0.3% at the end of 2023, according to the Office for National Statistics.
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GDP, which measures the value of goods and services produced, shrank 0.3% between October and December last year.
The fall is sharper than expected after economists had originally forecast a 0.1% decline.
It followed a contraction of 0.1% in the third quarter of 2023 between July and September, meaning the UK economy contracted for two consecutive quarters at the end of the year.
A recession is defined as two consecutive quarters of negative gross domestic product (GDP).
Reacting to the figures, Chancellor Jeremy Hunt said "low growth is not a surprise" but insisted the economy is still "turning a corner".
He said: "High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high - so the Bank of England can bring inflation down - low growth is not a surprise.
"But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low.
"Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”
Dr Mohamed El-Erian explains the UK's technical recession
Speaking to LBC’s Nick Ferrari at Breakfast, Dr Mohamed El-Erian chief economic advisor at Allianz said the UK is stuck in a “low level growth trap”.
He said: “So first, it is a technical recession, meaning two consecutive quarters of GDP contraction. For the year as a whole, the growth was flat. And that is what our problem is we are stuck in this low level growth trap.
“And the result of that is not only do we lose dynamism, but we lose resilience in a world that provides lots of shocks.”
Asked why the UK is “trapped”, Dr El-Erian said: “Two main reasons. One is low productivity, we have not invested enough in people, we have not invested enough in infrastructure. And as a result, we've become less productive.
“And the second reason is forward looking. We're not investing enough in tomorrow's engines of growth, and therefore the economy is losing dynamism as it moves forward.”
Dr El-Erian said it's likely the Chancellor will be “politically motivated to cut taxes” in the wake of the news but that his efforts should instead be focused on investing in “future drivers of growth”.
While previous recessions have been long-lasting, it is expected this one will be comparatively short-lived.
The numbers will be a major blow to Prime Minister Rishi Sunak who insisted just earlier this week that the UK economy has “turned a corner”.
During a visit to Harrogate on Monday, Mr Sunak told LBC's reporter: “At the start of this year I really believe the economy has turned a corner and we are heading in the right direction.
“You can see inflation has come down from 11% to 4%, mortgage rates are starting to come down, wages have been rising consistently now."
Shadow chancellor Rachel Reeves said the Prime Minister’s promise to grow the economy is “in tatters” following the new figures.
She said: “The Prime Minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off.
"This is Rishi Sunak's recession and the news will be deeply worrying for families and business across Britain.
"It is time for a change. We need an election now to give the British people the chance to vote for a changed Labour Party that has a long-term plan for more jobs, more investment and cheaper bills.
"Only Labour has a plan to get Britain's future back."
Anna Leach, deputy chief economist at the Confederation of British Industry (CBI), said: "December's GDP number suggests that the UK narrowly fell into a technical recession in the second half of the year. This brings to a close a pretty stagnant year for UK economic growth.
"The CBI's most recent surveys suggest this year has started better than last year ended, with expectations for services and manufacturing in positive territory and the drag from higher interest rates expected to diminish."
She continued: "There are multiple growth opportunities across the UK economy this year. As we head towards the Budget in March, we're looking for action to support labour market participation and investment so that opportunities in high-growth industries like net zero can be fully realised."
