Economic Monitor: UK enters technical recession

The UK entered a technical recession at the end of 2023, according to the latest ONS data. However, there is little new news here, as the data is a continuation of the sluggish and flatline growth following the pandemic bounce back in 2022. There has nonetheless been a rebound in services activity at the start of this year due to improving consumer confidence. If this continues, we expect the ONS to report just a short-lived recession when the Q1 2024 GDP figures are published, in May.

Despite this, recession headlines seen last month continue to dampen consumer sentiment in respect of big-ticket purchases in the near term. However, with the energy price cap falling noticeably in April, lower energy bills will provide some respite for households. Consequently, we may see the annual inflation rate fall below 2% in the coming months.

Continued turmoil in the Middle East has started to feed through to oil prices, and through to prices at UK fuel forecourts. This will provide some compensating upward pressure on inflation, and there are further risks as Russian sanctions loopholes are clamped down upon and conflict continues in Gaza, the Red Sea, and Ukraine. These factors have driven shipping costs higher by 93% (compared to a year ago), and these costs are likely to remain elevated while shipping routes are impeded.

• GDP fell in December by 0.1%, following growth of 0.2% in November. Services activity fell and the largest downward contributors were wholesale & retail trade as well as human health and social work activities. Consumer-facing services also fell, with the biggest downward contributor being food and beverage services as well as wholesale & retail trade. In contrast, accommodation provided the largest positive contribution.
• Inflation was unchanged in January and the Consumer Price Index was stuck at 4.0%. Of the headline rate, 0.8% emanates from food, 1.0% from restaurants and hotels and 0.8% from recreation and culture. Housing and energy costs, as well as transport, are now pushing down on inflation, shaving off 0.3% and 0.1% (respectively) from the headline figure. Fuel prices fell for both petrol and diesel, with these figures registered when petrol was £1.40 per litre and diesel £1.48. 
• The BRC-KPMG measure of retail sales growth decelerated to 1.2% in January, down from 1.7% in December.
• In the three months to December 2023, average regular pay (excluding bonuses) was estimated at £626 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£590 per week) and £481 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£472 per week).