By Dearbail Jordan & Faisal Islam
Business reporter and economics editor, BBC News
The UK fell into recession during the final three months of last year, official figures show, after the economy shrank by more than expected.
Gross domestic product (GDP) – a key measure of economic activity – dropped by 0.3% between October and December.
That follows a fall between July and September. The UK is considered to be in recession if GDP falls for two successive three-month periods.
The figure will be a blow Prime Minister Rishi Sunak
Growing the economy was one of five pledges he made in January 2023. Meanwhile, Chancellor Jeremy Hunt is less than three weeks away from unveiling his latest Budget.
Shadow chancellor Rachel Reeves said the data showed that Mr Sunak’s pledge to grow the economy was “in tatters”.
The government can use growing GDP as evidence that it is doing a good job of managing the economy. Likewise, if GDP falls, opposition politicians say the government is running it badly.
If GDP is going up steadily, people pay more in tax because they’re earning and spending more. This means more money for the government that it can choose to spend on public services, such as schools, police and hospitals.
Governments also like to keep an eye on how much they are borrowing in relation to the size of the economy.
Treasury sources have confirmed to BBC News that the chancellor is looking at a larger pencilled-in squeeze on public spending as a way to deliver tax cuts in the Budget on 6 March.
Forecasts for the public finances have materially deteriorated in recent weeks as interest costs on UK government borrowing has increased. Final decisions have not been made.
Commenting on GDP, Mr Hunt said: “While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.”
He added that there were “signs the British economy is turning a corner”.
But Mr Reeves said: “This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain.”
Figures from the Office for National Statistics showed that during the final three months of last year, there was a slowdown in all the main sectors it measures to determine the health of the economy, including construction and manufacturing.
The figure for the final three months of last year was worse than a 0.1% fall widely forecast by financial markets and economists.
GDP for the third quarter, between July and September fell by 0.1%.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the latest economic figures “might nudge the Bank of England a little closer to cutting interest rates”.
“But we doubt the Bank will be too worried about what is likely to be a mild and short recession,” she added.
Recent figures showed that inflation – which measures the pace of price rises – remained at 4% in January.
The Bank of England had been lifting interest rates to put the brakes on inflation but has kept them at 5.25% since August last year.
For the year as a whole, the economy grew by 0.1%.
“While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat,” said Liz McKeown, director of economic statistics at the ONS.
Nevertheless, excluding the Covid years, annual growth last year was the weakest since 2009 when the UK and major economies were reeling from the global financial crisis.
