The UK's recession may be deeper than the technical definition of two consecutive quarters of contraction suggests, according to new data from the Office for National Statistics (ONS). While GDP fell by 0.1% in the third quarter and 0.3% in the fourth quarter of 2023, GDP per head fell by 0.6% in the final quarter and has not grown since the first three months of 2022. Across the whole of 2023, GDP per head is estimated to have fallen by 0.7% when accounting for migration-driven population growth.
The recession was masked by higher defence spending and increased government spending in the second half of last year, which prevented a larger contraction. However, manufacturing and several other sectors experienced deep and persistent downturns. Most economists describe this as a 'technical recession' due to its shallowness and the expectation of a swift rebound, but the per capita figures paint a bleaker picture.
Trade data published on Thursday illustrate the UK's longer-term economic decline. The balance of payments deficit widened from £2.9bn in the first quarter of 2011 to £26.3bn in the fourth quarter of 2023, or 3.9% of GDP. This excludes volatile trade in gold and precious metals. A significant factor was the decline in goods exports, which fell by £15.2bn (4.6%) in 2023 compared to 2022, and by £44.7bn (12.4%) compared to the pre-pandemic period.
The rising cost of imported raw materials and energy has made UK goods more expensive abroad, highlighting the vulnerability of the manufacturing sector to global shocks. The ONS study showed substantial decreases in exports to both EU and non-EU countries. The difficulties stretch back to the 2008 financial crisis and were exacerbated by low private investment after the 2016 Brexit vote and trade restrictions with the EU since 2021.
Higher population growth bolsters overall GDP but, without increased productivity, GDP per head will struggle to regain 2022 levels. The data serves as a message to the government about the need for a more resilient economy.
