Britain stares at a second recession in little more than a year as growth stalls

New GDP figures on Thursday are expected to show the British economy once again staring at recession as growth grinds to a halt.

City economists expect data from the Office for National Statistics (ONS) to show that GDP fell back slightly in the fourth quarter of the year after business and consumer confidence slumped in the Autumn.

That puts the UK on course for a second shallow “technical recession” in little more than a year if the first quarter of 2025 also proves disappointing. A recession is generally defined by economists as two successive quarters of negative growth.

There is even a small chance that a recession will be declared immediately if the third quarter GDP performance is downgraded by the ONS.

Officially growth was flat in the third quarter but City economists point out that it would only take a £500 million - equivalent to 0.08% - reduction in the assessment of GDP in the July to September period for output to be deemed negative.

The UK suffered a shallow “Rishi recession” in the second half of 2023, its third in 16 years, although growth returned relatively robustly in the first half of 2024.

The latest figures follow the Bank of England’s shock downgrade of its growth forecasts for 2025, halving its projection from 1.5% to 0.75%.

Sanjay Rana, senior economist at Deutsche Bank said in a note this week: “We expect GDP to have contracted in the fourth quarter of 2024, ending the year on a low. What do our models tells us? We expect disappointing monthly GDP data to continue (0% month on month) in December, with services output flatlining, and manufacturing and construction activity both declining.

“This will leave GDP shrinking in the fourth quarter – albeit marginally – coming in at -0.1%quarter on quarter. Where does this leave annual GDP growth for 2024? At a much softer 0.7% – two-tenths below our official projections at the start of the year.

“Looking ahead, downgrades to our 2025 GDP forecast are inevitable. The weaker Q4-24 and Dec-24 GDP prints will result in a large negative carry over effect into 2025, pulling down on our 1.25% growth projection for this year. At minimum, the mechanical shift would lower our projection by 0.25pp for the current year.”

Paul Dales, chief UK economist at forecasters Capital Economics, said: “ Higher taxes for businesses, a lingering drag from the previous interest rate hikes and softer overseas demand explain why we have revised down our UK GDP growth forecasts, from 1.3% to 0.5% for 2025 and from 1.6% to 1.5% for 2026. This means our forecasts have shifted from being a bit stronger than those of the consensus and the Bank of England to a bit weaker.”