15 February 2024
If you are covering the latest UK GDP statistics, please find below a comment from Marcus Brookes, chief investment officer at Quilter Investors:
“The latest figures from the Office for National Statistics show that the UK economy contracted by 0.1% in December, meaning that it shrank by 0.3% in the fourth quarter of 2023. This marks the second consecutive quarter of negative growth, technically putting the UK in recession, albeit a potentially shallow and short-lived one that may not reflect the true state of the economy, which is likely to see a muted recovery in the first quarter of 2024.
“UK GDP contracting in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labour market and low productivity growth, but also adverse weather conditions. These factors affected the performance of the services and construction sectors, which are the main drivers of the UK economy. Retail sales also declined sharply in December, in the face of ongoing high inflation and interest rates as well as changing buying patterns.
“Some of these challenges are temporary and have already started to ease. The inflation rate held steady at 4% yesterday when many were predicting an increase. Over the coming months, we expect inflation to fall, potentially easing the pressure on UK households, and supporting the recovery of the consumer-driven economy. The key indicator to watch is inflation in the services sector, which accounts for the bulk of the UK's economic activity and employment and reflects the strength of wage growth and consumer demand, which are crucial for the UK’s recovery. As inflation steadies and then reduces, the Bank of England is more likely to cut interest rates to stimulate economic activity and investment.
“The UK economy faces challenges and uncertainties, but it also has many strengths and opportunities. It has a dynamic economy with a skilled and flexible workforce, and the UK is expected to overcome many of the current difficulties and emerge stronger and more resilient in the future.”
