UK officially falling into recession is a ‘headache’ for Rishi Sunak. Here’s why

The UK is officially in a recession as the cost of living crisis hits cash-strapped consumers hard.

Gross domestic product (GDP) fell by 0.3% in the three months to December, Office of National Statistics figures show.

The contraction follows a drop of 0.1% in the previous three months, meaning the economy has been shrinking for two consecutive quarters – meeting the technical definition of a recession.

The news is a headache for prime minister Rishi Sunak, who made growing the economy one of his five key priorities.

• UK recession: What is a recession and what does it mean for me?
• When will the cost of living crisis end and will prices in the UK ever go down?

Rachel Reeves, Labour’s shadow chancellor, described it as “Rishi Sunak’s recession.”

“Rishi Sunak’s promise to grow the economy is now in tatters,” she said. “The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off.“

The government insists that the economy is “turning a corner” attributing the contraction to anti-inflation measures.

“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.”

Across the whole of the year, the UK economy grew by just 0.1%, the weakest performance since 2009 excluding 2020.

Why is the UK economy in a recession?

According to the ONS, all main industries struggled in the run up to Christmas. Construction shrunk the most, plummeting 1.3%.

“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery,” director of economic statistics at the ONS, Liz McKeown, said.

The economy is “basically flat”, she told BBC Radio 4.

People are spending less. Consumer-facing services fell by 0.7% in the final three months of the year, with many consumers going out less in the run-up to Christmas and cutting back on purchases.

Retail sales volumes fell by 3.2% in December in the sharpest drop since the UK was in a Covid lockdown. High street titans like The Body Shop – which recently collapsed into administration – were hit hard.

Prior to the festive season, the National Debtline estimated that about 2.7 million people would have to choose between buying food or presents. Some 14 million consumers intended to purchase less than normal.

What will the UK recession mean for you?

The last UK recession was in 2020, when the Covid pandemic shut down the country. The economy shrank a massive 20.4%.

The recession before that happened in 2008 after the global financial crisis. Having shrunk by more than 6% between the first quarter of 2008 and the second quarter of 2009, the UK economy took five years to get back to the size it was before the recession.

A recession means that there is, in short, less money to go around. Unions have urged the government not to cut public spending as a response.

“The latest GDP figures highlight the UK’s continuing economic stagnation,” said Unite general secretary Sharon Graham. “But the UK is still a £2.5 trillion economy and as Unite has consistently said, instead of relying on growth fantasies we should be looking at ways to divide the pie more fairly.”

This is, by previous standards, a fairly “shallow” recession. But it will still hit bank accounts. To find out what it means for you, check out our explainer here.