UK enters recession as GDP falls 0.3%

The last quarter of 2023 saw the weakest GDP since 2009, excluding the years of the pandemic, with the services sector dropping by 6.8% in December

There was a predicted fall of 0.1% in GDP for Q4, which ended up at 0.3%, following the 0.1% fall in Q3.

Although the economy declined for two straight quarters, and is technically in recession, compared to 2022, actual growth was up by 0.1%.

The main contributors to the drop-off came from the services sector (0.2%), and manufacturing (1%). The most negatively hit was the construction sector with a 1.3% decline.

Across the services sector, accounting revenues fell by 12.4% in December to £3.47bn, in comparison with the same period in 2022 when growth was down by 8.2% to £3.52bn. Over the past 12 months, the accounting sector fell 1.6% in terms of revenue.

Julie Matheson, accounting industry regulatory partner at Kingsley Napley said: ‘We know firm leaders are watching revenues closely and are already aware of the need to monitor costs given reports of jobs cuts in recent weeks.

‘The wider GDP figures from the ONS showing a fall of 0.3% for the last quarter of 2023 confirm the wider economic picture remains uncertain so firms must continue to plan for resilience, be alive to regulatory risk in this environment and focus, above all, on servicing clients well.’

There was a decline in eight of the 14 sub-sectors of the services category in Q4 of 2023, including a 0.6% drop in retail, showing a sharp drop in sales over the Christmas period as people tightened their wallets.

However, the construction industry was the biggest contributor to the 0.3% drop overall with a fall of 1.3%.

This highlighted how high interest rates are impacting the sector, which performed worse than the 0.1% growth in Q3. New work being carried out dropped by 5%, contributing heavily to the counteraction to Q3’s development. Yet, the construction sector is estimated to have grown by 2% over the year. 

Additionally, the sale and repair of vehicles declined from Q3 although real estate recovered to a flatlining positioning after a difficult November.

The manufacturing sector experienced 0.1% growth in Q3 but looked as though this had been reversed in Q4 with 10 out of the 13 sub-sectors declining.

The manufacturing of machinery was the worst off, with a 7% drop, while production of rubber and plastic products, reduced by 4.7%.

Danni Hewson, head of financial analysis at AJ Bell said: ‘The fact that the UK slipped into recession at the end of 2023 isn’t a surprise considering the cost-of-living crisis that hobbled us all over the year, but the size of the slump is slightly larger than had been expected.

‘Constrained budgets kept us from hitting the high street in December, with retail sales figures down to a level not seen since the pandemic lockdowns of January 2021.

‘That said, recession is merely nibbling at the edges of the economy and there are already signs that this slump will go down in the record books as the shortest, shallowest recession to date.

‘With construction seeing the biggest decline in output in the third quarter, there is an argument to be made that hikes have already done the job they were intended to do.’

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