Britain’s economy slipped into a recession at the end of 2023 after output contracted by more than expected in the final three months, according to official figures.

The Office for National Statistics (ONS) estimated that gross domestic product (GDP) fell by 0.3% in the fourth quarter, following a decline of 0.1% in the previous three months.

It means that the economy entered a technical recession, as defined by two or more quarters in a row of falling GDP.

It marks the first time the UK has entered recession since the first half of 2020, when the initial Covid-19 lockdown sent the economy plunging into reverse.

@uktoday_ Here’s the UK Recession explained #ukrecession #recession2024 #gdp #uknews #uknewsheadlines ♬ original sound - UKToday 🇬🇧 Newsquest

Chancellor of the Exchequer Jeremy Hunt said: “High inflation is the single biggest barrier to growth which is why halving it has been our top priority. While interest rates are high - so the Bank of England can bring inflation down - low growth is not a surprise.

"But there are signs the British economy is turning a corner; forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low. Although times are still tough for many families, we must stick to the plan – cutting taxes on work and business to build a stronger economy.”

So what is a recession and what effect could it have on the UK public?

What is a recession?

According to business magazine Forbes, a recession is "a significant decline in economic activity that lasts for months or even years.

Forbes added: "Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time."

What causes a recession?

There are, according to Forbes, six main causes of a recession:

  • A sudden economic shock
  • Excessive debt
  • Asset bubbles
  • Too much inflation
  • Too much deflation
  • Technological change

East Lothian Courier: A recession is a significant decline in economic activity.A recession is a significant decline in economic activity. (Image: PA)

How does a recession affect me?

During a recession, you could lose your job, as unemployment levels rise and it becomes harder to find a new one since more people are out of work and people who keep their jobs may see cuts to pay and benefits.

Investments - in things like stocks, bonds and property - can lose money. 

Businesses are also affected, usually recording fewer sales during a recession which increases the risk of bankruptcy.

Lenders tend to tighten standards for mortgages, car loans and other types of financing. 

Forbes added: "Even if you plan ahead to prepare for a recession, it can be a frightening experience."