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What is a recession? UK economy shrank by less than thought in second half of 2023, says ONS

New data has revealed that while the UK did enter a recession last year, it was slightly less severe than financial experts thought.

The Office for National Statistics (ONS) has released revised statistics for the fourth quarter of 2023, showing that the economy contracted by 0.31 per cent not 0.34 per cent, This left the figure to one decimal place unchanged.

ONS director of economic statistics Liz McKeown said: “Our updated set of GDP figures shows quarterly growth unrevised across 2023, with a little growth in the first quarter and small contractions in the latter half of the year.”

Over the previous quarter, June to September, the UK economy contracted by 0.1 per cent.

Ms McKeown added: “New figures on households show that savings remained high, with an increase in income in the last quarter of the year.”

While this provides a more positive spin on the news, the reality that the UK slumped into a recession last year remains unchanged.

News of last year’s recession dealt a blow to Rishi Sunak who made a pre-election promise to deliver economic growth.

The Chancellor, Jeremy Hunt, who revealed a string of tax cuts in his spring budget, had previously said he was comfortable with Britain being plunged into recession if it would help lower inflation.

Earlier this year, he said: “High inflation is the single biggest barrier to growth, which is why halving it has been our top priority. While interest rates are high – so the Bank of England can bring inflation down – low growth is not a surprise.

“But there are signs the British economy is turning a corner. 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. Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”

So what is a recession?

What is a recession?

A recession is defined as two successive quarters of decline in GDP – the common measurement of the size of a country’s economy.

In the UK, it is measured in sterling and is a calculation of the value of goods and services produced over a period of time.

But the measurement most people focus on is the percentage change – the growth of the country’s economy over a period of time, typically a quarter or a year. It has been used since the 1940s.

A recession happens when the GDP figures turn negative and the economy goes into decline.

How long does a recession usually last?

The length of a recession can vary depending on several factors and the general economic climate.

The UK entered a recession in 2020 because of Covid lockdowns, and it lasted for six months. This was caused by rising energy prices and the collapse of the housing market.

In 2008, the global financial crash led to five successive quarters of recession and was the longest one since the Second World War.

If a recession carries on for a long time, or is particularly bad, it is known as a depression.

When was the last recession?

The latest ONS figures confirm that the UK’s last technical recession was at the end of 2023, when the UK economy retracted by 0.3% in the last three months.

A technical recession is named when the economy contracts in two consecutive quarters, like it did in the UK last year.

However, this isn’t as severe as other recession periods in the past. Before this, the economy plunged by 20 per cent between April and June 2020, as businesses closed and people were ordered to stay at home. GDP had fallen by 2.2 per cent between January and March that year.

At the time, the ONS said: “This is the largest quarterly contraction in the UK economy since ONS quarterly records began in 1955, and reflects the ongoing public health restrictions and forms of voluntary social distancing that have been put in place in response to the coronavirus pandemic.”