UK Recession Live: Reeves says Prime Minister Sunak's economic pledges are 'in tatters' and Britain is stuck in a cycle of 'decline'

Welcome to our live blog about the UK economy.

The UK is believed to have fallen into recession at the end of last year after the domestic economy slumped in December, official figures will reveal.

The Office for National Statistics (ONS) is expected to reveal that the UK economy contracted for the second consecutive quarter in the last three months of 2023.

Most economists expect gross domestic product (GDP) to fall by 0.1% in the October-December period.

This follows a 0.1% contraction in the past three months, after being revised down from the initially expected zero growth.

The fourth-quarter recession means the UK has entered a technical recession, defined by two or more consecutive quarters of GDP decline.

The Bank of England kept interest rates unchanged at 5.25% for the fourth consecutive time.

Official figures for the fourth quarter of last year are also expected to show that the economy was generally weaker last year.

ONS estimates show the UK is at risk of recession with three months remaining after economic growth failed to pick up at all between April and June and contracted between July and September.

Bank of England Governor Andrew Bailey told the Lords' Committee on Wednesday that the economy was starting to recover and suggested that any recession, if confirmed, was likely to be short-lived.

Mr Bailey told the House of Lords economics committee: “The February monetary policy report was balanced and predicted no recession, but in our view it was flat at best.”

“Frankly, it doesn’t take much to lean either way.

“Going forward, and I think this is even more important in some ways, we are starting to see signs of economic recovery in some surveys, for example…this year we are on a gradual recovery trend that will continue. ”

Inflation in the UK rose in January against expectations of stabilizing at 4%, as falling food prices offset rising energy costs, official figures showed. Economists had expected a rise to 4.2%.

Experts say workers are likely to start feeling better despite the short-term downturn.

Ellie Henderson, an economist at Investec, said: “Our base case is that the economy has probably gone into recession, but perhaps in the mildest sense of the word. A better explanation might be stagnation.”

Investec forecast a contraction of 0.1% in the fourth quarter, with production falling 0.3% in December as weak retail data weighed on the all-important services sector.

Mr Henderson added: “Overall, we expect a tough end to the year for the UK economy, but 2024 is likely to get off to a better start as household spending appears to have eased slightly.” .

“Indeed, lower inflation coupled with still-high wage growth will continue to boost real household disposable income, which will be a key driver of the expected recovery this year.”

“There will also be a further increase in after-tax income due to a 2p reduction in national insurance contributions for employees coming into effect from January 6, and will likely be further increased in the March Budget.”

London stocks soared on Wednesday after new official inflation figures came in lower than economists had expected, raising the possibility that the Bank of England would cut interest rates in the coming months.

The FTSE-100 index rose 56.12 points, or 0.75%, to end the day at 7,568.4 as retailer and home builder Persimmon joined Coca-Cola bottler at the top of the index.

Inflation was 4% in January, the same as last month, but traders were happy because economists had expected it to rise to 4.2%.

“The last 24 hours have been full of surprises. This morning's UK inflation numbers certainly caught the market's attention,” said Chris Beauchamp, chief market analyst at online trading platform IG.

“The sharp slowdown in price growth is hitting the pound hard, and it now looks very likely that the Bank of England will cut interest rates in the first half of this year.

“This has allowed the FTSE-100 to outperform other indexes today, but of course lags far behind in the long term.”

A technical recession could make a rate cut even more likely, with the Bank of England already suggesting it is a matter of when, not if, a rate cut will occur.

Bank of England Governor Andrew Bailey said that with inflation unchanged, “we are in a broadly expected situation”.

Asked whether he thought UK inflation could remain at its current level of 4%, the Chancellor said that his own forecasts indicated that inflation would return to the target of 2% by spring. reiterated the outlook.

“It looks like there will be a significant decline between now and April and May,” he said.