The UK has officially entered a technical recession, with its gross domestic product (GDP) shrinking by 0.3% in the fourth quarter of 2023.
This downturn follows a 0.1% decline in the previous quarter, marking two consecutive quarters of economic contraction.
Despite this, the annual GDP for 2023 showed a marginal increase of 0.1% compared to 2022.
The last quarter saw declines across all main sectors: services dropped by 0.2%, production by 1.0%, and construction output took a 1.3% hit.
Expenditure also dipped due to decreased household spending, government consumption, and net trade, though this was partially mitigated by an uptick in gross capital formation.
Reaction
Bob Singh, founder at Chess Mortgages:
“As expected, GDP fell in the last quarter of 2023, putting the UK into a technical recession. This will be a worry for the Bank of England and the Government and may come as a surprise for many consumers. This means interest rates may have to be cut sooner than later to keep the economy stimulated enough so the economic backdrop doesn’t worsen further. With an increase in mortgage arrears and repossessions, the Monetary Policy Committee need to ease the pain for homeowners by trimming rates earlier than planned.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“These figures are bad news for the economy and show the UK as a struggling economy among its global peers. On the face of it, a weakening economy should mean the central bank cuts rates sooner, which will filter into the mortgage market, but at the last meeting two of the cabal voted to raise rates further still. There is a long way to travel until rates are cut, and the delinquent UK economy won’t force the central bankers to change course.”
Riz Malik, founder & director at R3 Mortgages:
“Although bad for the country, a recession needs to be addressed. The quickest way to stimulate the economy would be to cut interest rates. However, considering the US are unlikely to cut rates until the summer, it would need courage and heart from the Bank of England to move first. Unfortunately, history has shown us they have as much of both as the Lion and Tin Man when Dorothy first met them in The Wizard of Oz.”
Gary Bush, financial adviser at MortgageShop.com:
“Technical or not a recession is a recession and this news this morning leaves financial advisers wondering how the hell did they get us here after pledging, a year ago, to bring growth back to the UK in 2023. It’s been discussed for decades now that the United Kingdom doesn’t produce enough goods in our slant towards the service industries – leaving us little activity to be able to hedge against the Gross Domestic Product statistics falling into recessions.
“Governments of all colours have long pledged to turn us back into an industrial creator in “Made in Great Britain” statements however all they have managed to create, it seems, is a lot of hot air. It’s clear to all that we need the government to ringfence our industrial activities, stop them from falling into overseas ownership, and drive forward home-grown growth in these sectors to leave us less exposed to overseas supply shortages, cost, and raw materials.”
Justin Moy, managing director at EHF Mortgages:
“Whilst it is being called a ‘shallow recession’, it still highlights the decline in our economy that needs addressing immediately. Mortgage rates have increased too quickly in a short period of time, and the Bank of England need to intervene and bring the base rate down sooner than planned to stimulate growth, given we are already halfway through Q1. I would expect SWAP rates to start to fall on this news, that will be good for mortgage borrowers and businesses that are facing hard times financially. A boost to the economy only comes from having money in your pockets to spend.”
Craig Fish, director at Lodestone Mortgages & Protection:
“This news comes as no surprise, but the good news is that it should be a shallow one. This is likely to mean two things, incentives and tax cuts being announced in the Spring budget, and an Autumn election for the government to buy themselves time, although I feel that time has run out. When the rate cuts come is the key thing though. Let’s hope that for once the UK can find its own feet and make a bold decision rather than waiting on the US to move first and then follow like a sheep.”
Michelle Lawson, director at Lawson Financial:
“Although this appears to be quite a shock to some of the economists, I’m personally not shocked at all. Many have said that the Bank of England went too hard with its rate increases without giving time to see the effects and maybe this is now coming home to roost. Their hand could now effectively be forced into rate cuts sooner rather than later. We can only hope this is shallow and short-lived. A gloomy outlook on a gloomy day. When will the sunshine return as public patience and tolerance is wearing thin?”
Ben Perks, managing director at Orchard Financial Advisers:
“While interest rates are high in an attempt to reduce inflation, low growth is no surprise. So the UK has dipped into a shallow recession. Hopefully this is the rock bottom, and those in power will act quickly to correct this course. Inflation has been the top priority for the Bank of England and this Government, but surely now growth must be high on the agenda and a base rate reduction should be on the horizon. If action is taken, this could actually turn into positive news for mortgage borrowers as prospects could soon improve.”
Rohit Kohli, director at The Mortgage Stop:
“I think everyone was expecting the UK to enter a technical recession, especially after the poor retail sales figures over Christmas. It’s not that people don’t want to spend, it’s that they simply can’t afford to. With sky-high mortgage payments, prices up by more than 20% over the last two years and taxes at an all-time high, a recession was always on the cards. Is it time for a rate cut? With inflation still twice the target that seems unlikely, so I am not expecting much change to mortgage rates yet. We now need to see how the markets react to this news.”
Akhil Mair, director at Our Mortgage Broker:
“Valentines is over and the UK enters recession. Today’s announcement of a 0.3% fall in UK GDP for the October-December quarter, as reported by the ONS, is undeniably grim news for the nation. This expected decline presents significant challenges, especially for the Conservative Party and Rishi Sunak, as they navigate towards the upcoming election later this year. Sunak now, more than ever, must present a clear and decisive action plan to stabilise the economy and instill confidence among the populace. Reduce interest rates I hear echoing the walls of every household.”
Nicholas Hyett, investment analyst, Wealth Club:
“The UK officially exited 2023 in recession with economic growth in December weaker than economists had been expecting, leading to a second quarter of negative growth. With inflation lower than expected this week, the news the UK is in recession will lead to growing pressure for the Bank of England to cut interest rates.
“But, 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. Whether today’s recession transforms into something that’s remembered outside the pages of an economic history textbook remains to be seen.”
