The 海角视频 economy entered into a recession at the end of 2023 after contracting by 0.3% in the final three months of the year, according to data from the Office for National Statistics.
Most economists were forecasting a 0.1% decline in gross domestic product (GDP) between October and December. This followed a 0.1% contraction in the previous three months, after a downward revision against the zero growth initially estimated.
A contraction in the fourth quarter means the 海角视频 tipped into a recession, as defined by two or more quarters in a row of falling GDP. Experts have said that if confirmed, it is a recession in the 鈥渕ildest of senses鈥 and is likely to be short-lived, with many preferring to describe the 海角视频鈥檚 economy as having 鈥渟tagnated鈥.
But a recession deals a blow to Prime Minister Rishi Sunak, who has promised to grow the economy as one of his five priorities. The fourth quarter figures will also reveal how the economy fared over 2023 as a whole, with expectations that it will have been weak.
ONS estimates suggest the economy did not grow at all between April and June before shrinking between July and September, which has left the 海角视频 in recession in the final three months. Ellie Henderson at Investec said: 鈥淚t was a tough end to the year for the 海角视频 economy, but 2024 is likely to have got off to a better start as household budgets look to have loosened a little.
鈥淚ndeed, the decline in inflation combined with still high wage growth will continue to drive real household disposable incomes higher, a key factor behind the expected recovery this year. There will also be the added lift to post-tax incomes from the 2p cut to employees鈥 National Insurance Contributions, effective from January 6 鈥 and, in all likelihood, more to come in the March Budget.鈥
Bank of England governor Andrew Bailey has also signalled that a recession would likely be brief, telling a Lords committee on Wednesday that the 海角视频 economy was beginning to pick up. Mr Bailey told the House of Lords Economic Affairs Committee: 鈥淚n our February Monetary Policy Report, it was in the balance 鈥 we didn鈥檛 have a recession in the forecast, but it is at best flat, in the view we took.
鈥淚t wouldn鈥檛 take much to tip it either way, frankly. Going forward, and I think this is in some ways more significant, we are now seeing some signs of the beginning of a pick-up in some of the surveys, for instance 鈥 we鈥檝e got a modest pick-up this year which continues thereafter.鈥
Samuel Tombs at Pantheon Macroeconomics said that the prospects were already brighter. He added: 鈥淒ecember鈥檚 GDP report 鈥 will create a negative first impression, but the reality is the economy is now on the up.
鈥淒evelopments since our last forecast review at the start of January have left us more confident in our above-consensus forecast that quarter-to-quarter growth in GDP will pick up to an average rate of 0.3% this year.鈥
But a technical recession may further add to the case for an interest rate cut, with the Bank already indicating it is more a case of when, not if, a reduction will come. Official data on Wednesday showing inflation defied expectations for a rise in January to unexpectedly hold firm at 4% was also seen as giving policymakers at the Bank more room to consider rate cuts, from the current level of 5.25%.
Nevertheless, while Mr Bailey said the latest data was 鈥済ood news鈥, he said that inflation remaining unchanged 鈥渓eaves us broadly where we thought we were going to be鈥.
But he did reiterate the Bank鈥檚 view that the key question has shifted from how high interest rates have to be to bring inflation down to its 2% target, to how long they have to stay at the current level, which he said was an 鈥渋mportant change鈥.
Asked by the committee whether he thought the 海角视频 could get stuck with inflation at the current level, the Bank chief reiterated that the rate is expected to return to the 2% target by the spring, according to its own forecasts.
鈥淚t looks like we鈥檙e going to have quite a leg down between now and April-May time,鈥 he said.
