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The U.K. fell into recession at the end of last year as the cost-of-living crisis continued to weigh heavily on productivity and consumer spending.
The British economy shrank by 0.3 percent in the final three months of 2023, according to the Office of National Statistics, marking the second quarterly contraction in a row and meeting the definition of a “technical recession.”
Analysts had broadly expected a recession, but today’s drop was a full 0.2 percentage points lower than forecast.
Though some analysts expect the recession to be temporary, the figures deal a blow to efforts by Prime Minister Rishi Sunak to paint a rosier picture of the economy in what is expected to be an election year.
On Tuesday, Sunak told business executives that the U.K. economy had “turned a corner” and was being widely forecast to grow in 2024.
According to the ONS, the downturn at the close of 2023 was broad-based, led by a 1.3 percent fall in construction and followed by manufacturing and services, with a slowing in recreational activities and auto purchases. U.K. trade and household consumption also struggled.
Business investment increased by 1.4 percent.
Bank of England Governor Andrew Bailey has downplayed fears of a prolonged recession, telling the House of Lords Economic Affairs Committee on Wednesday that he expected a “modest pick-up” to take place later in the year.
“The U.K. economy is likely to continue to flirt with recession for most of this year,” Marc Ostwald, chief economist at ADM Services International, said.
“Rates will remain high, even if there are a few cuts later in the year, with little or no fiscal room, and trade with Europe likely to suffer as economies there face a similar outlook,” he added.
Inflation is at least starting to slow again, having defied expectations of a small pick-up in December, according to data released Wednesday.
But even that good news was tempered by the suggestion from the Bank of England’s Bailey that there would be no imminent lowering of borrowing costs.
