Expert Comment: Why is the UK now in a technical recession?

“The latest estimated figures on GDP growth released by the Office for National Statistics (ONS) this morning, indicate that the UK is, technically, in a recession. This is because the economy contracted for two consecutive quarters. In the three months from July to September 2023, in fact, the UK GDP contracted by 0.1%, and in the last three months of 2023 ( October to December), the economy contracted by 0.3%.”

“According to the ONS, during these months there has been a fall in all the main three sectors: 1% in production , 1.3% in construction, and 0.2% in services . In the same quarter there has been a contraction in the net volume of trade, government spending and households consumption. The ONS estimates show that the UK GDP has increased by 0.1% in 2023, after a growth of 4.3%in 2022. Apart from 2020, which was affected by lockdowns for the Covid-19 pandemic, this is the weakest annual change since the 2009 financial crisis. The decrease in households spending is clearly due to a reduction in disposable income given the high inflation and higher interest rates.”

“It is important to keep in mind that these are estimated figures subject to revision, however they do not come as a surprise. We can expect this latest data on UK GDP to likely affect the decision to cut interest rates during the next meeting of the monetary policy committee of the Bank of England. We can also expect these figures to further affect the public perception of what have been the current government's priorities and influence the results of the next election.”