‘UK economy going nowhere – but we’re not an outlier, and things will soon improve for our pockets’

On the back of the announcement that the UK is in recession, Simon Gordon, chief economist at Panmure Gordon, has explained what it means for the country and your pocket.

What’s behind this?

Mr Gordon told Sky News: “What strikes you immediately from the data is construction, services and production – the three major component parts of the UK economy – all contracted. That’s a broader base than we’d expected.

“What was driving this [at the end of last year] was some caution among household spending during Christmas time.”

What’s happening in other countries?

Mr Gordon stressed these figures could yet be revised.

“There is a risk of over interpretation of small margins. It’s the longer-term view – in the whole of 2023, the economy is only seen to have grown by 0.1%. 

“That’s pretty much a flat line, suggesting the economy is going nowhere. That doesn’t make the UK a massive outlier versus the likes of the European economies like Japan.

“The real outlier in the global economy, honestly, is the United States, which is on a very, very different growth path [the economy there grew 3.3% at the end of 2023]. 

“But every other country that imports large parts of energy is dealing with the shock.

“It’s probably fair to say it’s been better [in the UK] than some of the European economies like Germany, which was already in a recession. And that recession is a bit more pronounced than ours.”

What next for people’s pockets?

Mr Gordon said that for households with large mortgages “it’s feeling very much like a recession”. But if you own a property outright, “and you don’t consume large parts of your budget, for example, on food and energy… it doesn’t feel like a recession at all.”

The next big change for people’s finances could come in April.

“For households and for businesses, they’ll see their energy costs come down quite appreciably in April and probably again in July through the energy price cap. 

“That puts more disposable income back in their pockets. So the view for household budgets is that should improve through the year.”

Adding to this, markets currently forecast the interest rate will start to fall in early summer.

What next for economy, government and rates?

Susannah Streeter, head of money and markets at Hargreaves Lansdown, has answered this one…

“There are a few green shoots of hope emerging this year, with business and consumer confidence increasing in January, but it’s going to be a hard slog back to meaningful expansion. 

“This is a tough backdrop for the Conservative Party to fight two by-elections, when household finances and the UK’s economic health is so high up the agenda for voters. 

“It does raise hopes slightly though that the Bank of England will begin cutting rates from the middle of the year.”