The UK economy has officially entered recession in Q4-2023, figures show. The Office for National Statistics (ONS) publishes figures for the UK’s GDP. This is the value of all the products & services the UK produces.
Typically, the UK’s GDP rises when the UK’s economy grows. However, should the economy shrink, GDP will fall.
UK Slips into Recession in Q4-2023
A recession is two consecutive three-month periods where the economy contracts rather than grows. With that definition, the UK is in recession because GDP fell for two successive three-month periods.
ONS figures show that the UK economy shrank 0.3% between October and December 2023. That followed a 0.1% fall between July and September. Thus, the UK went into recession in Q4-2023. For 2023, the UK economy grew by 0.1%.
What Happens During a Recession in the UK and its effects
For the UK, economic growth is good because it means more jobs, and companies can pay more to employees and shareholders.
The higher wages and enormous profits seen in a growing economy also generate extra revenue for the government through taxes. Thus, government spending on public services, benefits, salaries or tax cuts increases.
However, things can go in reverse when the UK economy shrinks, and it goes into recession. Worker might lose their jobs, and unemployment could rise. Graduates and school leavers could find it challenging to get a job. As a result, consumer demand will fall as people spend less and save more.
Less money spent in shops and restaurants may push some SMEs to close or shrink their workforce. Thus, people may lose their jobs. Also, Obtaining a mortgage or loan during a recession will become difficult as banks tighten their lending measures.
Furthermore, a UK recession means less govt revenues for spending on public services, benefits, or govt worker’s salaries.
The last UK Recession
The last UK recession occurred in 2020, at the height of the coronavirus pandemic lockdown. It only endured six months. The 20.4% fall in GDP recorded in Q3-2020 was the largest.
Also, another recession occurred in 2008 due to the global financial crisis, lasting for five quarters or 15 months. During the 2008 recession, unemployment grew sharply as almost 2.7 million people lost their jobs. It took five years for the UK to return to GDP growth before the recession.
What Caused a Recession in the UK in Q4-2023
Many factors triggered the recession in the UK in q4-2023. However, the primary cause is high inflation induced by the Russia-Ukraine war and the supply chain disruption caused by the COVID-19 pandemic.
To tackle high inflation, the Bank of England (BoE) hiked the base rate 14 times from December 2021 to August 2023. As a result, the BOE rate stands at 5.25%.
This dramatically impacted the UK economy finances, especially for aspiring and existing homeowners. For instance, those looking for a mortgage or remortgage faced higher costs.
As the cost of living crisis continued and inflation did not ease as quickly as anticipated, UK residents struggled with high energy bills and groceries. Eventually, consumer demand and spending fell, triggering a recession.
How did the UK get out of its Previous Recession
Whenever the UK’s economy is in recession, the Bank of England, the country’s central bank, usually cuts interest rates. This makes it cheaper for households & businesses to borrow money, boosting spending and economic growth. After 14 rate increases, the bank has held interest rates at 5.25% four times in a row, but cuts are expected later in the year.
How does the UK’s Economy Compare to other Countries
The UK has been one of the weaker members of the G7 group of the world’s largest economies.
The US economy grew by 3.3% in Q4-2023, a much better-than-expected result. The US GDP hit 2.5% in 2023, the best performance of all other advanced economies. It is also expected to outperform the rest of the G7 in 2024.
In October 2023, the International Monetary Fund (IMF) predicted that the UK would grow by just 0.6% in 2024.
Impact on the Conservative Party
The news will disappoint the Prime Minister, Rishi Sunak. The Prime Minister’s pledge to grow the economy has been dealt a hammer blow. As a result, a recession may further widen the already commanding lead the opposition Labour Party enjoys in opinion polls ahead of the national election expected in December this year.
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