What is a recession and why is the UK in one?

recession Chancellor of the Exchequer JEREMY HUNT is seen outside BBC as he appears in breakfast shows after revealing mini budget
Chancellor Jeremy Hunt previously said he was comfortable with recession if it brings down inflation. · ZUMA Press, ZUMA Press, Inc.

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The UK has fallen into a technical recession, with a sharper decline in gross domestic product (GDP) for October to December 2023 than expected.

It was the second quarterly fall in a row, coming after a decrease of 0.1% in the previous quarter, between July and September.

Across the whole year, GDP was estimated to have increased by 0.1% compared with 2022, while on a monthly basis, Britain ended the year with a 0.1% decline in December.

The latest data means that the UK was the joint-worst performing G7 economy in the final quarter of the year.

"Our initial estimate shows the UK economy contracted in the fourth quarter of 2023. While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat," said Liz McKewown, ONS director of economic statistics.

Read more: What is a technical recession and what does it mean for me?

“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery,"

She added: "The latest data showed that health and education performed less well than initially estimated in both October and November. Early indications suggest they both contracted in December.

"Retail and wholesale were the biggest overall downwards pulls on the economy in December, partially offset by growth in computer programming and manufacturing."

What is a recession?

Usually, when a country’s output is growing, the value of the goods and services it produces — known as its gross domestic product — goes up. But during an economic downturn this value falls.

A recession is a period of negative economic growth for two consecutive quarters. It is when GDP drops for two three-month periods in a row, and comes as a sign that the economy is weakening.

Inflation

Following the updated GDP release, chancellor Jeremy Hunt pinned the recession blame on inflation and high interest rates.

“High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high — so the Bank of England (BoE) can bring inflation down — low growth is not a surprise," he said.

Read more: Bread, meat and biscuits get cheaper as UK food inflation drops

“But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low. Although times are still tough for many families, we must stick to the plan — cutting taxes on work and business to build a stronger economy.”