Yahoo Finance What is a recession and what does it mean for me?
The UK economy has performed worse than previously thought and has now taken the first step towards recession.
The Office for National Statistics (ONS) scaled back expectations, saying that UK gross domestic product (GDP) fell by 0.1% in the third quarter, down from the previous estimate of no growth.
The downgrade is because the UK services sector is now estimated to have fallen by 0.2% in the third quarter of 2023, revised down from a first estimate fall of 0.1%.
Responding to the figures, chancellor Jeremy Hunt said: "The medium-term outlook for the UK economy is far more optimistic than these numbers suggest."
Read more: Recession looms large as UK economy shrinks in third quarter
But what would a recession would like and what impact would it have on your finances?
What is a recession?
Usually, when a country’s output is growing, the value of the goods and services it produces — known as its gross domestic product (GDP) — goes up. But during an economic downturn this value falls.
A recession is a period of negative economic growth for two consecutive quarters. It is when GDP drops for two three-month periods in a row, and comes as a sign that the economy is weakening.
It will not be clear until February whether the UK has entered or avoided recession when figures are released for the October to December quarter.
Will there be a recession in 2024?
There have been concerns over the UK's weak economic growth for some time, but the country has managed to avoid a recession so far.
While there’s uncertainty about what 2024 will bring, Ashley Webb, UK economist at Capital Economics, said that the bigger picture was that economists expected economic growth to "remain subdued throughout 2024".
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“Growth is weakening and interest rates are really beginning to bite and while a recession has just been avoided to date, there is no guarantee one will be avoided in 2024,” Richard Carter, head of fixed interest research at Quilter Cheviot, said.
“Inflation has eased more than anticipated and interest rate predictions are suggesting more easing than originally thought in 2024, but the damage may already have been done,” he added.
What does a recession mean for me?
Economic downturns such as recessions generally reduce economic opportunities, meaning failed businesses, fewer jobs, and lower wages.
As a result, UK households might have difficulty paying bills or saving money. This may push many into debt to make necessary payments.
Graduates and school leavers may find it harder to get their first job as companies cut back on hiring and spending.
Along with the erosion of house values, recessions tend to be associated with turmoil in financial markets, so it’s good to reassess your investments.
Watch: UK economy at risk of recession, official figures reveal
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