Every person £1,500 worse off as UK enters recession, charity warns

Each person in the UK is worse off by around £1,500 from the cost-of-living crisis, as the country falls into recession, a think tank has claimed.

According to data from the Office for National Statistics (ONS), Britain entered a technical recession at the end of 2023. The news marks the first time the UK has entered recession since the first half of 2020, when the COVID lockdown sent the economy plunging into reverse.

While economists say the recession is likely to be short-lived, with gross domestic product (GDP) expected to pick up from the start of 2024, James Smith, research director at the Resolution Foundation, said that people are already losing out in a “stagnation nation”.

He said: “Britain has fallen into recession, and a far deeper living standards downturn. Even this weak data is flattered by a rising population.

“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.”

The ONS said that manufacturing, construction and wholesale were the biggest drags on growth. This was partially offset by increases in hotels and rentals of vehicles and machinery, they added.

Recommended reading

• Prime minister’s pledge under pressure after UK fell into recession (PA Media)

• How does a recession affect house prices: What to know (The Northern Echo)

• Sunak predicted economy had 'turned a corner' a day before recession was announced (HuffPost UK)

What is a recession?

The UK is in a recession if GDP falls for two or more quarters in a row. Quarters are three-month periods in a year.

The ONS has estimated that GDP fell by 0.3% in the fourth quarter of 2023 – between October and December. That followed a decline of 0.1% in the previous quarter (July to September). The fourth quarter contraction was the biggest since the first three months of 2021, at the height of the pandemic.

Across the year as a whole, the economy grew, but by just 0.1%, down from 4.6% in 2022 and – when stripping out the pandemic-hit plunge seen in 2020 – the weakest growth since the aftermath of the financial crisis in 2009.

The figures mean that the UK has technically fallen into a recession. The last recession, which fell during lockdown – when most shops and businesses were closed, lasted for six months.

What does it mean for the government?

A government will always want to avoid a recession and while ministers may be trying to put on a brave face, the narrative of a strong economy will crumble. This will prove particularly tricky for Prime Minister Rishi Sunak, who is attempting to show a successful government in a year where a general election will likely take place.

Already way behind in the polls, the Conservatives could face a further collapse in support if voters blame them for the country entering a recession. Sunak has promised to grow the economy as one of his five priorities, so he will no doubt be judged on what has been announced today.

Chancellor Jeremy Hunt said inflation and high interest rates were behind the output fall, but insisted the economy was “turning a corner”. He said: “Forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low.”

But Labour has wasted no time in attacking the government, saying Sunak’s promise to grow the economy was “in tatters”. Shadow chancellor Rachel Reeves said: “This is Rishi Sunak’s recession and the news will be deeply worrying for families and business across Britain.”

Meanwhile, the Lib Dems accused Sunak of having “savaged the British economy”.

What have economists said?

Economists said the recession is likely to be short-lived, with GDP expected to pick up from the start of 2024. Some claim that it is likely to be a recession in the mildest of senses – that it is more accurate to describe the economy as having “stagnated”, having limped along close to zero for much of last year.

Barret Kupelian, chief economist at PWC UK, said: “We expect this episode to be one of the shallowest recessions of modern times, as it does not reflect a sharp and protracted downturn in response to a specific set of adverse economic circumstances. Business activity picked up significantly in the beginning of the year, which should translate to better real economic data.”

Economist Samuel Tombs from Pantheon Macroeconomics said it was “overly dramatic” to label the decline in economic activity as a recession. He highlighted a recent rise in employment, as well as business and consumer confidence returning to levels “consistent with rising activity by the end of the year”.

However, Joseph Rowntree Foundation chief economist Alfie Stirling said there is “no quick fix”, and that Britons were already facing “eye-watering food prices” and elevated interest rates.

Watch: Jeremy Hunt says low growth was 'expected' as UK tips into recession