‘It’s official, we’re in recession.” Investment experts react to today’s ONS data showing UK in ‘technical’ recession

by | Feb 15, 2024

Share this article

Data released by the ONS this morning has revealed that the UK has entered a ‘technical’ recession at the end of 2023. A technical recession is when an economy experiences two consecutive quarters of negative growth.

The ONS has reported today that UK gross domestic product (GDP) is estimated to have fallen by 0.3% in Quarter 4 (Oct to Dec) 2023, following an unrevised fall of 0.1% in the previous quarter – meaning that the UK is experiencing recession. It also said that while the economy has now decreased for two consecutive quarters, across 2023, GDP is estimated to have increased by 0.1% compared with 2022.

But what does this mean? We’re all feeling it so it’s unlikely to come as a surprise but given the small numbers does it really matter? Investment experts have been sharing their reaction to the news about the UK in recession as follows:

Commenting on the latest UK GDP figures, Ed Monk, Associate Director, Fidelity International, saidIt’s now official, we’re in recession. And the fall in growth at the end of last year was worse than expected. There’s a fair chance the economy will turn positive again in the months ahead but that’s no real cause for celebration now. This news will put extra strain on households, businesses and their workers and the public finances.


“Falling growth means demand is ebbing out of the economy. That puts downward pressure on inflation but there’s little sign the Bank of England will cut rates yet. Inflation remains twice its official target level and wages are still rising strongly. That’s good for households in the short term but may mean we’re living with interest rates at these levels for many more months.

“For investors, it’s probably best to tune out the noise on whether we’re in recession or not. History shows short-term economic ups and downs have little to do with performance in the stock market. Markets tend to be forward looking and investors will already be seeing past data on recent economic performance.”

According to Tomasz Wieladek, chief European economist at T. Rowe Price, today’s news just adds to the uncertainty as he comments:


“UK GDP shrank by 0.3% in Q4 2023, contracting for the second quarter in a row and putting the UK into a technical recession. The weakness in output was due to several specific categories. Bad weather in December led to a larger-than-usual drop in construction, while exports shrank a lot faster than imports and the general disruption to trade from the Red Sea attacks would have played a part. The only category displaying improvement was business investment, which grew by 1.5% in Q4, against a decline of 3.2% in Q3. 

“While the UK entered a technical recession, I believe it will not spread to the labour market. A broader definition of recession also requires the labour market to deteriorate significantly. On the contrary, the unemployment rate fell during the two quarters. Furthermore, broad survey data started improving rapidly in December and continued to perform strongly in January. Given surveys are a strong indicator of economic performance, this suggests the economy may return to growth in H1 2024, without a significant rise in unemployment. 

“The Bank of England had a 50% chance of recession in its projections, but the scale of this morning’s output contraction will affect the monetary policy debate. We believe the most likely time for a rate cut is in H2 2024, but the contraction this morning raises the risks of an earlier cut. Nevertheless, we believe the labour market will remain resilient and tight in the face of output weakness – just like in other European countries. Although the MPC will take this morning’s contraction into account, as long the labour market remains resilient, the debate about whether and when to cut will continue and the timing of the first rate cut will remain highly uncertain.


“Against this backdrop, markets will likely continue to be pulled in two different directions. On the one hand, weak near-term CPI data and weak output data will lead markets to price in more cuts and a rally in gilts, in line with a traditional monetary policy cycle. On the other hand, a resilient labour market and sticky wages will likely lead to the pricing of fewer cuts and a gilt selloff. Therefore, gilt markets are likely to experience a lot of volatility moving forward. 

Danni Hewson, head of financial analysis at AJ Bell, isn’t surprised by the news as she comments:

“The fact that the UK slipped into recession at the end of 2023 isn’t a surprise considering the cost-of-living crisis that hobbled us all over the year, but the size of the slump is slightly larger than had been expected.


“Constrained budgets kept us from hitting the high street in December, with retail sales figures down to a level not seen since the pandemic lockdowns of January 2021, and a series of storms also took their toll.

“That said, recession is merely nibbling at the edges of the economy and there are already signs that this slump will go down in the record books as the shortest, shallowest recession to date.

“Psychologically it is likely to take a toll and even if we accept these numbers are backwards looking and the worst may be behind us, at least for now, already shaky confidence will be knocked.


“The word recession strikes a chord with all of us. We’ve lived through other downturns and felt the impact of those on our own lives, not least the post-pandemic malaise that’s still gripping the country.

“We can understand that every recession is different and that the numbers this time suggest a limited impact, but we can’t help but be wary. And whilst other economic indicators and surveys suggest that green shoots are already springing up, the ground they’re planted in is anything but fertile.

“The UK economy has been boggy for the last couple of years and all sectors have struggled to find their feet. The big question now is how will these figures play into the Bank of England’s determination of when interest rates should start to come down?


“With construction seeing the biggest decline in output in the third quarter there is an argument to be made that hikes have already done the job they were intended to do.

Marcus Brookes, chief investment officer at Quilter Investors said:

“The latest figures from the Office for National Statistics show that the UK economy contracted by 0.1% in December, meaning that it shrank by 0.3% in the fourth quarter of 2023. This marks the second consecutive quarter of negative growth, technically putting the UK in recession, albeit a potentially shallow and short-lived one that may not reflect the true state of the economy, which is likely to see a muted recovery in the first quarter of 2024.


“UK GDP contracting in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labour market and low productivity growth, but also adverse weather conditions. These factors affected the performance of the services and construction sectors, which are the main drivers of the UK economy. Retail sales also declined sharply in December, in the face of ongoing high inflation and interest rates as well as changing buying patterns.

“Some of these challenges are temporary and have already started to ease. The inflation rate held steady at 4% yesterday when many were predicting an increase. Over the coming months, we expect inflation to fall, potentially easing the pressure on UK households, and supporting the recovery of the consumer-driven economy. The key indicator to watch is inflation in the services sector, which accounts for the bulk of the UK’s economic activity and employment and reflects the strength of wage growth and consumer demand, which are crucial for the UK’s recovery. As inflation steadies and then reduces, the Bank of England is more likely to cut interest rates to stimulate economic activity and investment.

“The UK economy faces challenges and uncertainties, but it also has many strengths and opportunities. It has a dynamic economy with a skilled and flexible workforce, and the UK is expected to overcome many of the current difficulties and emerge stronger and more resilient in the future.”


Another commentator for whom today’s announcement did not come as a surprise as Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner says:

“UK GDP recorded a negative quarter of growth from October to December in 2023. This is one data point which should not have come as a surprise for anyone. What was surprising was the widespread nature of the decline – services, production and construction all recorded negative quarters. This is confirmation of the fact that high interest rates are starting to affect the entire economy. It is interesting to note that the biggest contributor to the decline in services was from wholesale and retail trade, which is the impact of reduction in expenditure of households. In addition, construction of private houses is in its fifth quarterly decline, falling 8% in the last quarter. This, in addition to the resilient headline inflation, implies that UK has definitely “stagflated”.

“The onus now shifts firmly with the incumbent government as well as the Bank of England to come up with policies that help the economy grow. While there may be general outcry for rate and tax cuts to help boost consumer expenditure and help beleaguered corporates, that could be a short-term fix. What is required from our leaders are some genuine policies to be able to generate sustainable growth, which benefits the wider economy. Failing which, the image of the mammoth stuck in the La Brea Tar Pits creates the perfect analogy.”


Susannah Streeter, head of money and markets, Hargreaves Lansdown comments on the market reaction to the latest ‘mild’ recession news saying:

’The FTSE 100 has shrugged off Britain’s recession woes with fresh optimism from Wall Street rippling through markets. Investors are looking forward, with a slightly better scenario expected to emerge for the UK later this year. There are also hopes that earlier interest rate cuts are still in sight in the US following comments from one Fed policymaker.

Given the monetary screws have been turned so tight, at a time when inflation has battered many people’s finances, it’s not surprising that consumers recoiled from spending, helping push the UK economy into recession. In December shoppers refrained from festive excesses, pulled purse strings tighter while strikes by junior doctors knocked health output. Activity on construction sites also fell back by 0.5% with downpours likely to be partly to blame. Although some of these may be temporary effects, and the recession is still a mild one, the contraction in the fourth quarter was worse than expected. It seems clear that national resilience in the face of higher interest rates and painful borrowing costs has finally buckled. Even though the official recession recognition was expected, confirmation has pushed down the pound slightly, as pessimism about the UK’s prospects spreads. Sterling was trading at $1.255, dipping 0.12%.

There are a few green shoots of hope emerging this year, with business and consumer confidence increasing in January, but it’s going to be a hard slog back to meaningful expansion. This is a tough backdrop for the Conservative party to fight two by-elections, when household finances and the UK’ economic health is so high up the agenda for voters. It does raise hopes slightly though that the Bank of England will begin cutting rates from the middle of the year.

George Lagarias, Chief Economist at Mazars said: “The UK is now officially in a technical recession. Lower inflation numbers earlier in the week did warn us that this may be the case for an economy that has spent a year teetering around zero-growth. This should come as no surprise given the global growth slowdown and weakness from Europe.

“However, I remain optimistic going forward, that the recession may not be a deep or long one. Firstly, the “recession”, is in fact technical, with the economy moving from slightly above-zero growth to slightly below-zero. It may signify a trend or be the result of macroeconomic volatility. Second, economic strength from across the Atlantic and a high deficit are keeping the prospect of a deep recessionary spiral away. Third, industrial production in Europe picked up in December, for the first time in nearly a year.

“Fourth, we are in an election year. In the age of monetarism recessions are, ultimately, a choice. If the government steps up spending, or if the -independent-  Bank of England cuts interest rates faster than presently expected, then the recession should remain short-lived.”

Share this article

Related articles

Sign up to the IFA Magazine Newsletter

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, that fits perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode