The UK fell into recession in the final quarter of 2023, with GDP dropping by 0.3% between October and December, the Office for National Statistics (ONS) has stated.

This drop in GDP follows a smaller decrease between July and September, when GDP fell by 0.1%.

Overall, the latest ONS estimates suggest that across Q3 and Q4 2023, the UK economy contracted by a cumulative 0.5%.

Personal finance analyst at BestInvest, Alice Haine, commented: "A recession has repercussions for people’s finances as a weaker economy can cause earnings to stagnate and redundancies to rise as businesses focus on cutting costs rather than investing in expansion and new hires. A downturn, albeit mild, will certainly be a cause for concern for people whose household finances have already been battered by a barrage of rising bills over the past two years.

"The weak growth data will pile pressure on the Bank of England (BOE) to cut interest rates sooner rather than later to bolster the economy, which has been heavily impacted by high inflation and still-high borrowing costs. Fourteen interest rate rises between December 2021 and August 2023 are clearly taking their toll on consumers.”

Alongside output drops in production (-0.1%), manufacturing (-0.9%) and construction (-1.3%), household expenditure also fell by 0.1% in the final quarter of 2023.

The ONS reported that the largest contributions to this fall were lower spending on recreation and culture, miscellaneous goods and services, and transport.

However, net tourism did contribute positively in the latest quarter.

Head of money and markets at Hargreaves Lansdown, Susannah Streeter, added: "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."

Streeter added: "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’s economic health is so high up the agenda for voters. It does raise hopes slightly though that the BoE will begin cutting rates from the middle of the year."

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