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Our views 15 February 2024

UK GDP: In (mild) technical recession

5 min read

UK Q4 GDP came in at -0.3% quarter-on-quarter, weaker than expected (consensus and my forecast: -0.1%). That means that after -0.1% in Q3 the UK has recorded two consecutive quarters of falling GDP and was therefore in a ‘technical recession’ in the second half of 2023.

That recession is so far shallow – though not quite as shallow as expected. For 2023 the Office for National Statistics estimate that the UK economy expanded a very unimpressive 0.1%.

Looking at the breakdown of GDP on a quarter-on-quarter basis, consumer spending fell 0.1%, government spending fell 0.3%, though gross fixed investment rose 1.4% with business investment encouragingly up 1.5% (however, that follows a bigger fall in investment in Q3). There was a big drag from net exports with a sizeable fall in exports in Q4.

The December GDP figures suggest that 2023 ended the year on a weak note, with GDP at -0.1% for the month, though that was stronger than the -0.2% expected and after +0.2% in November. Production output rose, but services and construction contracted. Focusing in on services, retail trade fell, but there was also a contribution from the junior doctor strikes.

Does it matter that the UK is in a mild technical recession?

This remains a shallow contraction and not that different from the flattish picture for the UK economy that we’ve become used to in recent quarters. The picture of the UK barely growing since late 2021 remains intact.

The ‘recession’ label may matter in terms of narratives and presumably matters politically in an election year too. If people/firms prominently/regularly now hear that the UK is ‘in recession’ that might affect their behaviour, for example making them more cautious to hire, spend or invest at the margin.

Business surveys, however, are consistent with a bit of a pick-up in private sector activity with the UK composite Purchasing Managers’ Index above the 50 ‘no growth’ level for three consecutive months. In the labour market data earlier this week, the HMRC payroll employee data suggested stronger-than-expected job gains in January.

A shallow technical recession shouldn’t be too much of a surprise to the Bank of England who were projecting 0.0% for today’s Q4 GDP figure. Governor Bailey said earlier this week that the economy is showing “some signs of upturn” and that any downturn “will be shallow.” The labour market and Consumer Price Index data earlier this week are likely to weigh heavier in the Bank’s decision making for now – especially with the business surveys already having turned up – and I didn’t interpret those earlier data points taken together as especially reassuring on the inflation picture.


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