Finance

recession

The UK’s recession could be coming to an end, with reductions in summer interest rates likely.

Official figures indicate that the UK has moved away from recession, with the economy growing by 0.2% in January. This growth more than offsets the 0.1% contraction in December 2023.

Despite this progress, there are challenges ahead, including a weakening job market and uncertain economic prospects. While inflation is easing and there are indications of interest rate cuts, the path to recovery remains unclear, affecting accountants, business owners, and the wider economy.

Factors such as persistent wet weather and lingering interest rates in the first quarter of this year may dampen the anticipated rapid economic recovery. So what signs point to a swift recovery from the UK recession?

  • Household disposable income increased despite the recession. Real household disposable income, which is the money households have after taxes and adjusting for inflation, rose by 0.7% in Q4 2023, compared to zero growth in Q3.
  • Inflation is showing signs of easing, with UK CPI inflation slowing to 3.4% in February, the lowest rate since September 2021.
  • Labour market conditions are softening, with the unemployment rate rising marginally to 3.9% in the three months to January 2024.
  • Summer interest rate cuts are likely, with the Bank of England keeping interest rates on hold at 5.25%, but with a more dovish vote suggesting a potential for rate cuts later in the year.
  • Forecasts from the Office for Budget Responsibility (OBR) and the Bank of England show significant differences, with the OBR presenting a more optimistic outlook for near-term growth compared to the Bank of England.

While these indicators suggest that the UK is on track to exit the recession this quarter, challenges such as high interest rates and labour shortages may lead to a more subdued recovery.

In terms of upcoming events to watch for:

  • The next GDP figures from the Office for National Statistics (ONS) on 12 April should indicate muted economic activity in February due to significant wet weather.
  • ICAEW’s Business Confidence Monitor (BCM), a comprehensive quarterly survey of UK business activity, will be launched on 24 April, covering the first quarter of 2024.

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