New figures point to the possibility that the British economy could fall into recession.
The economy contracted between July and September, according to the Office for National Statistics (ONS).
What is a recession?
Normally, a country's economy grows.
Individual incomes tend to increase as the value of the goods and services produced by the country – its gross domestic product (GDP) – increases.
But sometimes the level of GDP falls, and this is a sign that the economy is doing badly.
A recession is generally defined as a decline in GDP for two consecutive three-month periods – or quarters.
Is the UK in recession?
Then, the economy grew in the first three months of 2023.
It will not be clear until February, when figures for October to December are released, whether the UK has entered or avoided recession.
In November, the OBR said it expected the UK economy to grow by 0.6% this yearwhich represents an upward revision from the forecast of a 0.2% contraction made in March.
However, the organization also revised downwards its growth forecasts for the next three years.
It currently forecasts that the economy will grow by:
- 0.7% in 2024 (down from its previous estimate of 1.8%)
- 1.4% in 2025 (compared to 2.5%)
- 1.9% in 2026 (compared to 2.1%)
How does the UK compare to other countries?
The latest data indicates that the UK economy has only grown faster than Germany's since the end of 2019.
In October, the International Monetary Fund (IMF) predicted that the UK would grow by just 0.5% this year.
However, this is better than Germany and would keep the UK last in the G7 in terms of growth.
But he downgraded the UK's outlook for next year, estimating that the economy will grow by 0.6%, making it the slowest-growing developed country in 2024.
Why is a recession important?
For most people, economic growth is a good thing.
This generally means that there are more jobs, companies are more profitable and can better compensate their employees and shareholders.
The higher wages and greater profits seen in a growing economy also generate additional money for the government in the form of taxes.
It can choose to spend more on social benefits, public services and civil servants' salaries, or to cut taxes.
When the economy contracts, the situation can be reversed – but governments generally still have a choice when it comes to public spending.
How would a recession affect me?
Some people could lose their jobs and unemployment could increase. Graduates and school leavers may find it more difficult to find their first job.
Others may have a harder time getting a promotion or getting pay raises large enough to keep pace with price increases.
However, the pain of a recession is generally not felt equally across society, and inequality can widen.
Benefit recipients and those on fixed incomes are particularly likely to struggle.
How to get out of a recession?
When the economy struggles to grow at the same time as there is high inflation, there can be a situation called “stagflation”, which is very difficult to resolve.
When a country is in recession, the Bank of England – which is independent of the government – would generally cut interest rates.
It then becomes cheaper for businesses and households to borrow money, which can boost spending and growth.
How long have recent recessions lasted?
The 2020 recession lasted just six months, although the 20.4% reduction in the UK economy between April and June of that year was the largest on record.
The previous recession began in 2008 due to the global financial crisis and lasted five quarters.