Figures from the Office for National Statistics (ONS) estimated that gross domestic product (GDP) contracted by 0.3% in Q4 2023, after a 0.1% fall in the previous quarter.
Two successive quarterly declines are required for an economy to enter a recession, and while the decline was larger than expected, the contraction has been described as shallow.
Marcus Brookes, chief investment officer at Quilter Investors, said the UK was technically in a recession, but it was potentially a “shallow and short-lived one that may not reflect the true state of the economy”.
He said there would likely be a muted recovery in the first quarter of this year.
Nicholas Hyett, investment analyst at Wealth Club, agreed that the recession was not an immediate cause for concern, adding: “While recession is clearly bad news for the UK economy, it’s worth bearing in mind that, as recessions go, this is still a very mild one, and might yet get revised out of existence altogether.
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“Whether today’s recession transforms into something that’s remembered outside the pages of an economic history textbook remains to be seen.”
Base rate predictions
Max Shepherd, group economist at Yorkshire Building Society, said uncertainty around the central bank’s next move remained as data on the wider economy presented a mixed picture.
He said: “On Tuesday, ONS data showed unemployment fell to 3.8% year-on-year (YOY), which was a surprise to market forecasters, who expected an increase to 4%. Wage growth is slowing – good news for the BoE – but not as much as expected.
“On Wednesday, it was announced inflation remained at 4%, below expectations, but services inflation rose, one of the main data points stopping the BoE from lowering interest rates. Finally, GDP data were published showing that the UK was in a technical recession in the second half of 2023, after two consecutive quarters of negative growth – albeit only just.”
Shepherd added: “Together the data are inconclusive and provides limited guidance for the BoE around when is an appropriate time to start cutting interest rates.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said there would now be expectations on the central bank to lower the base rate, which was held at 5.25% at the last base rate meeting.
She said: “The weak growth data will pile pressure on the BoE to cut interest rates sooner rather than later to bolster the economy, which has been heavily impacted by high inflation and still-high borrowing costs. 14 interest rate rises between December 2021 and August 2023 are clearly taking their toll on consumers.
“Uncertainty may be rife, but even Governor Andrew Bailey remains optimistic that better times lie ahead. Households should err on the side of caution, however, constraining expenditure where they can and focusing on paying down excessive debts and building up robust emergency savings. Borrowing and living costs remain relatively high, so preparing for all eventualities will help households survive any further financial shocks.”
Jason Hollands, managing director at Bestinvest by Evelyn Partners, said: “It is important to recognise that financial markets are forward-looking. From here on, confirmation that we have been in a mild recession means inflation should continue to moderate and the case for interest rate cuts and lower borrowing costs for companies strengthens.”
