The UK slipped into a recession at the end of last year after a poor performance from the dominant service sector pushed the economy into contraction, new figures show.
According to the Office for National Statistics (ONS), the UK economy shrunk 0.1 per cent in December meaning it contracted 0.3 per cent over the fourth quarter of last year.
The all-important services sector contracted 0.1 per cent in December, offsetting a 0.6 per cent expansion in production.
This means the UK fell into a very shallow recession in the second half of last year, after the 0.1 per cent contraction recorded in the third quarter. A technical recession is two consecutive quarters of negative growth.
The UK has struggled to generate any momentum over the course of 2023 due to the twin impact of rising inflation and high interest rates.
The benchmark Bank Rate stands at a post-financial crisis high of 5.25 per cent, having been hiked from just 0.1 per cent at the end of 2021. This has sent a chill through the economy as households and businesses struggle under the burden of higher borrowing costs.
However, inflation fell fairly rapidly in the second half of last year, fuelling bets that interest rates would start being lowered. Huw Pill, the Bank’s chief economist, has confirmed that rate cuts are a “when rather than an if“.
Lower inflation has also given households a real income boost. Analysts at Deutsche Bank predict that real wages will grow at 1.75 per cent in 2024, making it one of the highest growth rates in the last decade.
All this means that a number of economists think better times are ahead for the UK in 2024.