Figures from the Office for National Statistics (ONS) show the UK economy contracted by 0.3 per cent in the final three months of 2023, a larger dip than the expected 0.1 per cent prediction.
The 0.3 per cent dip means the UK has dipped into a technical recession, defined by two or more quarters in a row of falling GDP.
It marks the first time the UK has entered recession since the first half of 2020, when the initial Covid-19 lockdown sent the economy plunging into reverse.
The figures deal a blow to Prime Minister Rishi Sunak, who has promised to grow the economy as one of his five priorities.
Responding to the news, Chancellor of the Exchequer Jeremy Hunt 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.”
What is a recession?
According to business magazine Forbes, a recession is “a significant decline in economic activity that lasts for months or even years.
Forbes added: “Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.”
What causes a recession?
There are, according to Forbes, six main causes of a recession:
- A sudden economic shock
- Excessive debt
- Asset bubbles
- Too much inflation
- Too much deflation
- Technological change
How does a recession affect me?
During a recession, you could lose your job, as unemployment levels rise and it becomes harder to find a new one since more people are out of work and people who keep their jobs may see cuts to pay and benefits.
Investments – in things like stocks, bonds and property – can lose money.
Businesses are also affected, usually recording fewer sales during a recsion which increases the risk of bankruptcy.
Lenders tend to tighten standards for mortgages, car loans and other types of financing.
Forbes added: “Even if you plan ahead to prepare for a recession, it can be a frightening experience.”
