UK economy: What is a recession?
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New figures show the UK economy (the way a country makes and spends money) officially entered recession at the end of last year.
A recession is a period where the economy shrinks for two three-month periods - or quarters - in a row.
So what does this mean for the UK and why does it matter?
Keep reading to find out more.
What is a recession?
Rishi Sunak had said that growing the economy was one of his top five priorities as prime minister
In the UK, we buy, make and sell goods and services and all of that activity is known as the economy.
The more things and services we buy and sell, the more money the country has, and when that happens the economy grows.
But sometimes the amount of goods and services made or sold falls, which means the economy starts to shrink.
Higher prices for goods, things like cars or houses and food, have led to many households cutting back on spending, which has had an affect on the economy.
If this happens for a period of two quarters of a year (that's two three-month periods) in a row, then it is called a recession.
Why is there a recession?
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To measure economic growth, experts look at something called Gross Domestic Product - or GDP.
In simple terms, GDP is a way of measuring the size and health of the economy. The more the economy grows, the higher the GDP, which could mean people have more money to spend.
It was revealed today by the Office for National Statistics that GDP shrank by 0.3% between October and December 2023. This followed a decline of 0.1% between July and September 2023.
Those figures mean the country went into recession at the end of 2023.
The economy involves making and buying products and services. You may have heard people refer to the economy, which often means a specific country's economy.
A 'strong' economy is generally one where there are lots of jobs, pay is high, and businesses are selling things and making money.
A 'weak' economy is one where people are losing jobs, can't afford things and businesses are struggling to make money.
How will the recession affect people?
When the economy grows, there could be more jobs and some people may earn more money and have more money to spend.
It could also mean more cash for the government which could be used on public services, such as schools and hospitals.
When the economy shrinks, then the opposite happens, some adults aren't earning as much and are spending less.
What have people been saying?
Jeremy Hunt says the outlook will be better once the Bank of England feels able to lower interest rates
The chancellor, Jeremy Hunt, who oversees the UK's finances, says growth in the economy was expected to be 'weak' because of high interest rates - which is how much banks charge people to borrow money.
However political rivals have criticised the Prime Minister, Rishi Sunak, who had pledged to grow the economy as one of his party's top priorities.
Opposition Labour leader Sir Keir Starmer wrote: "Britain is hit by a recession and it's working people who will pay the price."
However, the chancellor Jeremy Hunt defended the government saying "the economy has been more resilient, unemployment has stayed low, and real wages have been rising now for six months."
- Published5 April 2023
- Published22 December 2023
