Are We Experiencing Economic Malaise?
According to the Office for National Statistics, the UK real Gross Domestic Product (GDP), a measure of the final value of products and services delivered by the economy, is estimated to have fallen by 0.3% between October and December 2023, following a previous fall of 0.1% between July and September 2023.
Hence, the UK economy has entered recession, defined in technical terms as two consecutive quarters of negative real GDP growth.
Fall in the output of the services sector, as well as declining industrial and construction production, were the main drivers of the economic underperformance, with both households and the public sector reining in expenditure and imports exceeding exports.
Too Much Gloom, Perhaps
However, investments by businesses have increased by the end of 2023, unemployment is still very low by historical standards, wages have increased in real terms, thanks to a steady fall in inflation, and this makes the overall picture less dire and points towards a shallow recession that should be quickly reversed in the next few months.
Better than expected numbers on the headline inflation front, with the latest reading of the Consumer Price Index (CPI) at 4%, have also helped consumer confidence recovering, albeit from a low base:
While the economy has now decreased for two consecutive quarters, GDP across 2023 is estimated by the Office for National Statistics to have marginally increased by 0.1% compared with 2022.
The anaemic economic growth notwithstanding, the FTSE 100 index and the FTSE 250 index both posted a total return of about 8% in the calendar year 2023.
That said, economic weakness seems to be affecting UK stock markets recently, with both the FTSE 100 index and the FTSE 250 index sputtering in terms of performance year to date:
The forthcoming 6th March government budget, thought to likely feature pro-growth measures such as tax cuts, and the Bank of England expected to start cutting interest rates by June at the latest, could be the needed catalysts to revive the economy and should probably help improve investors’ sentiment for the rest of the year.
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Disclaimer
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