The UK economy may have slipped into a technical recession at the end of 2023 according to estimates from think tanks, with the UK government publishing data this week that will show how the economy fared.
Gross domestic product edged down by 0.1% in the final three months of last year, following an equal decline in the previous quarter, according to the National Institute of Economic and Social Research (NIESR).
A technical recession is defined as two consecutive quarters of contracting GDP.
The Office for National Statistics (ONS) will publish the October to December figures on Thursday and experts expect them to show the economy shrank by either 0.1% or 0.2%. In the three months from July to September the economy has already been confirmed to have contracted by 0.1%.
The last time the UK saw a recession was in 2020 during the pandemic
But what would a recession would like and what impact would it have on your finances?
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 (GDP) – 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.
If it’s just two quarters it is seen as a technical recession as the economy remains broadly flat. A more persistent downturn is considered a full recession.
“The common sense understanding of a recession is a prolonged and significant downturn in economic activity. So not just one or two quarters, and not just a 0.1% change, but actually something a bit more substantial,” as ONS chief economist Grant Fitzner explained.
Will there be a recession in 2024?
There have been concerns over the UK's weak economic growth for some time, but the country has managed to avoid a recession so far. But most economists are predicting the UK will be declared officially in recession when the ONS figures come out.
Capital Economics is predicting that the gross domestic product (GDP) fell by 0.3% in November and December, which would mean that the economy contracted by 0.1% in the final quarter of last year, as it did in the three months prior.
Despite the potentially gloomy economic figures, Rishi Sunak has insisted the UK economy is heading in the “right direction”.
Speaking to reporters in Harrogate earlier this week, the prime minister acknowledged that recent years had been “undoubtedly difficult”, but added: “At the start of this year I really believe the economy has turned a corner and we are heading in the right direction.
“You can see inflation has come down from 11% to 4%, mortgage rates are starting to come down, wages have been rising consistently now.”
Sunak added that the cut in national insurance at the start of the year “shows that the plan is working”, but declined to say whether entering a technical recession would affect the possibility of further tax cuts.
Bank of England governor Andrew Bailey said on Monday it was not too important whether the economy shrank in the final quarter of last year and entered a shallow 'technical' recession.
"I would not put too much weight on that," Bailey said in a question-and-answer session after giving a lecture at Loughborough University in central England.
"If we do get two successive negative quarters ... it will be very shallow. What I would put more weight on is that the indicators we have seen since have shown some signs of upturn."
What does a recession mean for me?
Economic downturns such as recessions generally reduce economic opportunities, meaning failed businesses, fewer jobs, and lower wages.
As a result, UK households might have difficulty paying bills or saving money. This may push many into debt to make necessary payments.
Graduates and school leavers may find it harder to get their first job as companies cut back on hiring and spending.
Along with the erosion of house values, recessions tend to be associated with turmoil in financial markets, so it’s good to reassess your investments.
Watch: Sunak insists UK economy has 'turned a corner'