Recession

The business news that matters

Hello and welcome to the latest edition of Off to Lunch…

The UK has fallen into recession, according to official data.

The economy contracted by 0.3 per cent in the final three months of 2023, the ONS has said this morning. This follows a contraction of 0.1 per cent in the third quarter of 2023. A recession is officially classed as two consecutive quarters of economic decline.

The last recession in the UK was in 2020 during the Covid-19 crisis. Before that it was the financial crisis in 2008 and 2009, and before that it was the early 1990s. Recessions don’t happen very often…

But does this actually matter? Chris Giles, the long-standing economics commentator at the Financial Times, is doubtful…

He is not alone in that view. This is from James Smith, developed markets economist at ING:

“The UK may have met the definition of a technical recession in the fourth quarter, but the data appears to be hugely volatile beneath the surface and in any case, the growth outlook is looking brighter for 2024. Remember too that the Bank of England is focused not on growth, but services inflation and wages as a guide for when to begin cutting rates.”

He goes on to say:

“The bigger-than-expected fall in GDP masks a lot of underlying volatility in the data and we aren't alone in saying that the monthly output data has been fairly unhelpful over recent months. The fourth-quarter fall seems to largely boil down to a couple of main drivers, one of which was the sharp fall in retail sales at the end of last year. We think will be reversed in the first couple of months of 2024 and may reflect changing seasonal patterns in spending that aren't fully adjusted for in the data.

“The fourth quarter was also hugely volatile for manufacturers, with an unusually sharp fall back in October. That was fully reversed by December, but overall across the fourth quarter, output was down. The flip side of that is that even if manufacturing stays flat in the first quarter, flattering base effects mean it’ll most likely positively contribute to GDP this quarter. Indeed, we don’t expect a third overall contraction in GDP in the first three months of 2024 and suspect we'll see a modest rebound.”

This chart from the ONS shows how the UK economy performed in 2023 compared to other large economies:

You can find the ONS data in full here

Here is some of the other reaction…

Faisal Islam, the economics editor of the BBC, has written a piece headlined: “Should we care that the UK is in recession?” He writes:

“For many economists even what might be called a "micro" or "nano-recession", would be a somewhat benign outcome given the aftermath of the worst health crisis in a century, the worst energy shock in half a century, and 15 years of near-zero interest rates scrapped in 15 months.

“But it will, rightly, illuminate a more substantive issue: this economy is not growing.”

You can read that analysis in full here

For what it’s worth, financial markets have largely shrugged off the data. The FTSE 100 was down just 0.06 per cent in morning trading and the pound was down just 0.1 per cent against the dollar.

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Other stories that matter…

1. Staff at The Body Shop fear that the high street retailer will be broken up after FRP Advisory was appointed as administrators to the UK business. More than 2,000 jobs and 200 shops are at risk. You can read more by The Guardian here. The owner of The Body Shop’s parent company, Aurelius, will be the first creditor in-line for pay-outs from the administration of its UK business, according to a story by The Times here

2. I enjoyed this detailed piece from the Financial Times about how businesses are interacting with Keir Starmer and the Labour party ahead of the election. The piece includes this quote from someone who attended one of Labour’s recent events with businesses: “It’s so funny seeing all these people who used to blow smoke up the arses of the Tories sitting here.” You can find the piece here

3. OpenAI is working on an AI-powered search engine for the internet that could challenge Google, according to a story by The Information here

4. The New York Times launched newsletters as something of a side-hustle, but now reporters at the publication consider featuring in the main The Morning newsletter as valuable as being on the front page of the newspaper. Vanity Fair has done a big piece on this here

5. The Times’ Matt Dickinson has done a fascinating interview with Sam Burgess, who has taken over as head coach of the Warrington Wolves rugby league team. Burgess is just 35 years old (that’s younger than the team’s captain) and is learning about being a leader on the job after a tumultuous end to his playing career. “I would love to make this my life,” he says. You can read the piece here

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Podcast…

A reminder that the latest episode of our Business Leader podcast features an interview with Marc Allera, the chief executive of EE and BT’s consumer business. He explains how EE went from being an upstart mobile phone brand to a key part of BT and a business with big ambitions for the future. Plus, Allera explains what he learned from launching Sega’s Dreamcast games console and mobile phone brand Three in the early 2000s, which had mixed success.

You can listen to the episode via Substack here, Apple here or Spotify here

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And finally…

Cousin Richie is going to be the Thing. If that makes no sense to you then you still need to watch The Bear, one of the best television shows in recent years, and a show that is basically about growing a business. Cousin Richie is played in The Bear by Ebon Moss-Bachrach, who has just been cast in Marvel’s Fantastic Four alongside Pedro Pascal, star of The Last of Us, another TV series I highly recommend. You can find The Bear on Disney+ here and The Last of Us on Now TV here

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Best

Graham