Official data confirms that the UK economy slipped into a recession at the close of last year, with contractions recorded in the final two quarters of 2023.
The Office for National Statistics (ONS) revealed that the gross domestic product (GDP) contracted by 0.3% in the last three months of the year, matching a previous estimate.
This was preceded by a 0.1% contraction in the third quarter, marking the technical definition of a recession—two consecutive quarters of negative growth.
As the government gears up for a general election, Chancellor Rishi Sunak has been working to reassure Conservative MPs about the economy's trajectory, pointing to a rebound in private sector activity in the early months of the year.
The recent decline in inflation is expected to prompt the Bank of England to commence interest rate cuts this summer, which would alleviate financial burdens on mortgage holders and indebted businesses.
However, one member of the Bank's monetary policy committee, Jonathan Haskel, has cautioned against anticipating immediate rate cuts, suggesting that they are still "a long way off."
Haskel has expressed concerns about sustained high wage growth, arguing that interest rates should remain elevated until there is clear evidence of a sustained decrease in wage inflation.
The Consumer Prices Index (CPI) fell from 4% in January to 3.4% in February, driven primarily by lower energy and food prices.
Nonetheless, inflation in the services sector remained above 5%.
Bank Governor Andrew Bailey recently indicated that rate cuts were being considered, expressing confidence that inflation was moving towards the Bank's 2% target following a peak of 11.1% in October 2022.
Financial markets are anticipating at least three quarter-point rate cuts this year.
The ONS noted that all three sectors of the economy—services, production, and construction—experienced declining output in the final quarter of 2023, with government spending preventing a more severe recession.
Despite this, Britain's trade and household consumption decreased, with retail sales experiencing the largest monthly decline in December since January 2021.
Economists at Capital Economics believe that the UK's mild recession at the end of 2023 was as expected and that the economic recovery is likely already underway.
They forecast a stronger recovery in 2024 and 2025 than the Bank of England anticipates, with inflation falling more than expected and interest rates being cut faster and deeper than current market predictions suggest.
In response to the ONS figures, Shadow Chancellor Rachel Reeves criticized Sunak, accusing him of failing to grow the economy and leaving Britain in recession.
Chancellor Jeremy Hunt acknowledged the challenges of the past year but expressed confidence in the government's plan, noting that inflation has fallen significantly, the economy grew in January, and real wages have increased for eight consecutive months.
He highlighted the government's cuts to national insurance as a measure to boost growth and support workers financially.