UK Enters Recession; US Still Strong

The world's sixth-largest economy has suffered a mild contraction - but it's not the only one to be struggling.

When will the UK exit recession?

The UK has officially entered recession. According to figures published by the Office for National Statistics (ONS), GDP fell by 0.3% in the last three months of 2023. This was the second consecutive quarter that GDP had fallen, meeting the technical definition of a recession.

All of the country's major sectors contracted. The all-important services sector shrunk by 0.2%, with production and construction falling 1% and 1.3% respectively. The pound fell slightly against the dollar on the news.

Despite the gloomy headlines, the economy is essentially flat. The end of 2023 marked the shallowest start to a recession in 50 years. Analysts believe that the contraction may be short-lived, because the country's jobs market remains strong.

This week's inflation figures would have been of some comfort, too. The UK's headline inflation rate came in at 4%, below expectations, and wage growth remains above this level.

The Global Picture

The UK is the world's sixth-largest economy, but the wider picture is mixed. Japan has also just slipped into recession, and the contraction of its economy means that it dropped one place down the global rankings to fourth place. Germany is now the world's third-largest economy. Questions remain about China, the world's second-largest economy, which is struggling with deflation and a crumbling real estate sector.

China Faces Sharpest Price Decline In Fifteen Years
China’s consumer prices see a 15-year low, signaling deflation as economic challenges mount.

Meanwhile, the US economy apparently remains strong, despite dire warnings from various quarters over recent months. At present, it appears that the Fed's medicine of higher interest rates may be working, bringing inflation (broadly) back under control without killing the patient by slowing the economy more than it can handle. US GDP increased at an annualized rate of 3.3% in Q4 2023.

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