The UK economy will officially go into recession as GDP falls – what this means for you
The economy shrank by 0.3% in the last months of 2023, according to the latest figures from the Office for National Statistics (ONS).
It means Britain has entered a technical recession, which is defined as two or more quarters in a row of falling gross domestic product (GDP).
This is because the economy shrank by 0.1% in December.
GDP measures the value of goods and services produced in Britain.
It also estimates the size and growth of the economy.
Today's figures follow a contraction of 0.1% in the previous quarter.
According to ONS estimates, the economy failed to grow at all between April and June and contracted again between July and September, leaving Britain at risk of recession in the last three months.
The United Kingdom last fell into recession in 2020 after the coronavirus pandemic hit, shutting down large parts of the economy.
This recession lasted only six months, while the previous recession in 2008 lasted a year and a half.
During a recession, job losses are common as companies try to cut costs to stay afloat.
Most economists had forecast a 0.1% decline in GDP between October and December.
Experts had said that if this were confirmed it would be a recession in the “mildest sense” and likely to be short-lived, with many preferring to describe the UK economy as “stagnant”.
Bank of England Governor Andrew Bailey had indicated that a recession, if confirmed, would likely be short-lived. On Wednesday he told a Lords committee that the British economy was starting to recover.
But a technical recession could further strengthen the case for a rate cut, with the Bank already indicating that it is more a matter of when, rather than if, a cut will come.
Official figures on Wednesday showed inflation exceeded expectations that a January increase would unexpectedly hold at 4%.
This is also seen as a way to give policymakers at the Bank more room to consider rate cuts, from the current level of 5.25%.
What does it mean for your finances?
Today's figures show that the economy has shrunk, leading to a recession.
During a recession, job losses are common as companies try to cut costs to stay afloat.
Companies can also go bankrupt or fail.
For example, the 2008 recession resulted in the loss of stores in the major high streets, including music store Zavvi, clothing store Principles and the stalwart Woolworths.
The government can make cuts or increase taxes to strengthen its finances. Alternatively, it may decide to increase budgets to find its way out of the problem.
And the number of people in debt and in arrears is also likely to soar, and there could be more defaults on loans and mortgages or repossessions and bankruptcies.
How to protect your finances
There are ways you can keep your cash safe if you're concerned about Britain's economic prospects.
Make sure you review all your bank statements and bills so you know what your income and expenses are each month.
Of course, there are bills you can't ignore, but that doesn't mean you can't cut costs in other ways.
For example, you can save money by switching to a cheaper mobile phone tariff or by canceling subscriptions you don't need, such as Netflix or Amazon Prime.
If you have outstanding debts, the worst thing you can do is ignore them as it will only make your financial situation worse.
Stay on top of what you owe and always pay back priority debts.
There are also plenty of organizations where you can obtain free debt advice.
These include:
- National Debt Line – 0808 808 4000
- Step Change – 0800 138 1111
- Citizen advice – 0808 800 9060
You should also check what benefits you are eligible for, as you may be claiming without knowing it.
Entitledto's free calculator allows you to calculate whether you are eligible for various benefits, tax credits and Universal Credit.
If you don't want to register, consumer group money savingexpert.com and charity StepChange both have benefits tools powered by Entitledto's data, which allow you to save your results without logging in.
Emergency financing is also available for households in difficulty, which is paid out by municipalities.
The Household Support Fund is intended to help people on low incomes or benefits cover the costs of food, energy and general living costs.
What help is available varies depending on where you live, as each municipality sets its own eligibility criteria.
It's worth checking with your local authority to see what you might be able to get.
You can use the government's online municipality finder to find out which municipal area you fall under.