UK economy in recession as households cut spending

Christmas shoppers on Princes Street, Edinburgh. Photograph: Murdo MacLeod/The Guardian

The UK economy fell into recession at the end of last year as hard-pressed households cut back on spending in response to soaring interest rates and rising living costs.

The Office for National Statistics said gross domestic product (GDP) fell by a larger than expected 0.3% in the three months to December after a collapse in retail sales in the run-up to Christmas.

It followed a drop of 0.1% in the third quarter, confirming a second consecutive quarter of falling national output – the technical definition of a recession – in a blow to the government.

Economists had widely expected a shallow recession at the end of last year as households came under pressure from higher borrowing costs and rising prices for everyday essentials, forcing cutbacks elsewhere. Widespread strikes across the economy and heavy rainfall also dampened activity.

More recent snapshots from the economy have, however, shown a rebound in consumer confidence since the start of this year buoyed by the prospect of interest rate cuts from the Bank of England as inflationary pressures cool.

Andrew Bailey, the Bank’s governor, earlier this week downplayed the significance of the quarterly GDP figures, suggesting there were signs of an “upturn” in the economy that would become clearer in the months ahead.

More details to follow…