The economy shrank by 0.3 per cent in the final three months of last year, following a fall of 0.1 per cent in the previous quarter. That means that the UK fell into a technical recession in the second half of 2023.
And although figures for the year as a whole showed that gross domestic product actually rose by 0.1 per cent last year, 2023 was the weakest year for the economy since 2009 (excluding 2020, when activity was hit by the pandemic).
So what does this mean for you, your finances and your efforts to plan for the future?
Well, the UK appears to be stuck in a pattern of little to no growth right now, and that’s having very real effects on people’s pockets.
As James Smith, Research Director at the Resolution Foundation, notes: “After accounting for population growth, the UK economy hasn’t grown since early 2022, and fallen far behind its pre-cost of living crisis path, with an equivalent loss of around £1,500 per person.
“The big picture is that Britain remains a stagnation nation, and that there are precious few signs of a recovery that will get the economy out of it.”
Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales (ICAEW), agrees, saying: “Though the shallowness of this recession provides comfort, these figures also confirm that our economy remained locked in a cycle of persistent stagnation throughout 2023 as a myriad of headwinds, including high inflation, weighed heavily on activity.”
Dr Roger Barker, Director of Policy at the Institute of Directors, adds that the UK falling into a technical recession is “a psychological blow for business”, following a slight improvement in business confidence over the last few weeks.
Chancellor Jeremy Hunt has sought to be upbeat in response to the latest economic figures, telling BBC News that “if we stick to our guns now, we can see light at the end of the tunnel”.
And the ICAEW is correct to point out that this latest recession is not as severe as previous slumps.
But nevertheless, this latest data will be a concern to many hard-pressed consumers and businesses, for whom strong and steady growth looks to be a far-off prospect.
A recession can bring with it several specific concerns, including:
Market jitters
A slump in the economy can trigger a degree of volatility in the stock markets. However, panicking in the face of short-term swings is the worst thing an investor can do.
Stay calm, don’t act impulsively and stick to your long-term investment strategy, regardless of how volatile it might seem right now.
Job security
A recession might lead to many people worrying about their job prospects. But we should stress that the labour market is performing strongly at the moment, with the unemployment rate across the UK falling to 3.8 per cent in the final quarter of 2023, down from 3.9 per cent in the three months to November. This was the lowest level recorded since November 2022 to January 2023.
Of course, that might not mean much for you personally, so now would be the perfect time to make sure you’re performing at work as well as you can and keeping your skills and industry knowledge sharp and up-to-date.
Rising living costs
The rate of inflation has, thankfully, come down significantly over the last year or so. But that doesn’t mean prices have fallen too.
Furthermore, inflation remained stuck at four per cent in January. That’s the same as in the previous month and double the Bank of England’s target of two per cent.
Households and businesses alike should therefore be looking at where they can either cut costs or use their resources more efficiently.
Interest rates
The Bank of England has been raising interest rates in a bid to tackle inflation, and in the last few months, they’ve remained on hold at 5.25 per cent – a 15-year high.
With inflation now being much lower than it was a year ago, the question is no longer how high will interest rates go, but when will they start to come down?
This decision will directly affect how much you’re charged for loans, the size of your debt repayments and the interest you’ll get on savings. So it’s well worth making sure you’re not paying more than you need to at a time when rates are higher than you’ve been used to before.
For example, if you have high-interest debts to repay, it could be worth prioritising these ahead of other debts with lower interest rates.
While news of a recession can be alarming, an economic slump doesn’t have to knock your financial plans off course.
A financial planner can work with you to help you make informed financial decisions, respond to economic headwinds, and build a strategy that reflects your specific needs, circumstances and goals.
With the help of a professional specialist in this field, you can be confident of weathering this storm and coming out stronger on the other side.
Contact us now to learn more.