The UK economy slipped into recession during the final quarter of 2023: having contracted by 0.1% in the third quarter, it shrank by 0.3% during the final three months of the year, dampened in part by weakness in manufacturing and in consumer-facing services.
- The UK economy contracted by 0.3% in Q4 2023
- CPI inflation remained at 4.0% YoY in January
- Consumer optimism showed signs of improvement
A “weak” recession: the UK economy slipped into recession during the final quarter of 2023: having contracted by 0.1% in the third quarter, it shrank by 0.3% during the final three months of the year, dampened in part by weakness in manufacturing and in consumer-facing services. Over 2023 as a whole, the UK economy grew by only 0.1%. Nevertheless, Bank of England (BoE) Governor Andrew Bailey highlighted “distinct signs of an upturn”, suggesting that “this is the weakest (recession) by a long way” in comparison to previous recessions. The FTSE 100 Index ended February unchanged, while the FTSE 250 Index fell by 1.6% over the month.
“Policymakers appear to be shifting towards a looser monetary stance”
Edging closer towards a rate cut? The Bank of England (BoE) maintained its key interest rate at 5.25% for another month. Policymakers appear to be shifting towards a looser monetary stance, although Governor Andrew Bailey insisted that they needed to “be confident that inflation is set to fall all the way back to the 2% target – and stay there” before cutting rates. In any case, a cut in the near future is not a foregone conclusion: the BoE expects inflation to tick up slightly during the third quarter.
Wage growth slowing: the rate of consumer price inflation remained unchanged at 4% year on year in January as higher prices for electricity and gas were offset by lower prices for food, furniture and household goods. Growth in average earnings (excluding bonuses) slowed during the final quarter of 2023 from 6.6% to 6.2%.
Consumer confidence on the up? After a poor December for retail sales, in which volumes fell by a record 3.3%, consumers returned to the shops in January, generating a 3.4% increase. The British Retail Consortium reported that annualised shop price inflation had fallen to its lowest rate since May 2022. Elsewhere, although confidence amongst UK consumers edged lower in February, according to GfK’s monthly survey , overall optimism over their personal financial situation over the next 12 months remained stable, suggesting an improvement in the nation’s financial mood.
FTSE UK reshuffle: in its quarterly review of UK equity index constituents, FTSE Russell announced that budget airline easyJet would join the FTSE 100 Index in March, replacing Endeavour Mining, which will move to the mid-cap FTSE 250 Index. Other companies set to join the FTSE 250 Index include Kier Group and Wincanton.
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