UK Economy Contracts Between 2022Q1 and 2023Q4

Main points

• Monthly GDP fell by 0.1 per cent in December, following growth of 0.2 per cent in November. This monthly figure was mainly driven by decreasing output in the services sectors, particularly in the wholesale and retail trade category, as well as the construction sector.
• GDP contracted by 0.3 per cent in the fourth quarter of 2023 relative to the previous three-month period. This was generated by contractions in all main sectors: in Q4 services output fell by 0.2 per cent, production output fell by 1.0 per cent and construction output fell by 1.3 per cent.
• The Q4 data marks two quarterly consecutive falls in GDP, following a fall in GDP by 0.1 per cent in Q3. By the standard metric, this means that the UK economy was in a shallow recession in the second half of last year. However, this metric is both arbitrary and not greatly informative: the state of the UK economy is better described by the fact that GDP fell between the first quarter of 2022 and the final quarter of 2023. Further, GDP per head remains lower than pre-Covid.
• We forecast GDP to grow by 0.2 per cent in the first quarter of 2024. This forecast remains broadly consistent with the longer-term trend of low, but stable economic growth in the United Kingdom.

“Today’s ONS data indicate that GDP fell by 0.3 per cent in the fourth quarter of 2023, marking two quarterly consecutive falls in GDP. By the standard metric, this means that the UK economy was in a shallow recession in the second half of last year. However, this metric is both arbitrary and not greatly informative: the state of the UK economy is better described by the fact that GDP fell between the first quarter of 2022 and the final quarter of 2023. Further, GDP per head remains lower than pre-Covid. The broader picture of flatlining growth and its adverse implications for living standards in the long-term should dominate today’s headlines, rather than technicalities.”

Paula Bejarano Carbo

Economist, NIESR