The UK has slipped into a technical recession, the latest GDP figures from the Office for National Statistics have revealed.
The latest figures showed that the UK economy contracted by 0.1% in December, meaning that it shrank by 0.3% in the fourth quarter of 2023.
This marks the second consecutive quarter of negative growth, technically putting the UK in recession.
Marcus Brookes, chief investment officer at Quilter Investors, suggested it will be a potentially “shallow and short-lived” one that “may not reflect the true state of the economy”.
He said this is likely to see a “muted recovery” in the first quarter of 2024.
“UK GDP contracting in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labour market and low productivity growth, but also adverse weather conditions,” he added.
“These factors affected the performance of the services and construction sectors, which are the main drivers of the UK economy. Retail sales also declined sharply in December, in the face of ongoing high inflation and interest rates as well as changing buying patterns.”
Ed Monk, associate director at Fidelity International said falling growth means demand is “ebbing out of the economy”.
“That puts downward pressure on inflation but there’s little sign the Bank of England will cut rates yet,” he added.
“Inflation remains twice its official target level and wages are still rising strongly. That’s good for households in the short term but may mean we’re living with interest rates at these levels for many more months.”
He suggested that, for investors, it is probably best to “tune out the noise on whether we’re in recession or not”.
“History shows short-term economic ups and downs have little to do with performance in the stock market. Markets tend to be forward-looking and investors will already be seeing past data on recent economic performance.”
Danni Hewson, head of financial analysis at AJ Bell, said the fact that the UK slipped into recession at the end of 2023 “isn’t a surprise considering the cost-of-living crisis that hobbled us all over the year”.
However, she said, “the size of the slump is slightly larger than had been expected”.
“Constrained budgets kept us from hitting the high street in December, with retail sales figures down to a level not seen since the pandemic lockdowns of January 2021, and a series of storms also took their toll.
“That said, recession is merely nibbling at the edges of the economy and there are already signs that this slump will go down in the record books as the shortest, shallowest recession to date.
“Psychologically it is likely to take a toll and even if we accept these numbers are backwards looking and the worst may be behind us, at least for now, already shaky confidence will be knocked.
“The word recession strikes a chord with all of us. We’ve lived through other downturns and felt the impact of those on our own lives, not least the post-pandemic malaise that’s still gripping the country.”
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