UK To Be Awarded Its Recession Badge Next Week: Santander

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A stormy December means the UK will likely earn its recession badge next week after the ONS confirms a second consecutive quarter of decline.

According to economists at Santander, the economy is likely to have registered a -0.2% for the year's final quarter.

"The UK economy remains on the very cusp of a recession, with our forecast of a 0.2% fall in December GDP enough to deal the final blow and deliver a mild 0.1% contraction in output in the final three months of the year," says Gabriella Willis, UK economist at Santander CIB.

"After the fall in GDP already logged in the three months to September, this would be enough to give the UK the unwelcome 'badge' of recession," she adds.

UK GDP data for December 2023, the final quarter and full-year 2023 are all due on 15 February at 07:00 GMT.

Santander expects December's output data to show the services sector shrank by 0.3% compared to November, weighed down by very weak retail sales data, which showed a more than 3% slump.

The ONS said UK retail sales read at -3.2% month-on-month in December, undershooting expectations for -0.5%. The year-on-year figure stood at -2.4%, which was over 3.5 percentage points below the 1.1% growth the market expected.

Santander says the weather is an important part of the December GDP picture due to storms Elin, Fergus and Gerrit.

This suppresses consumer expenditure and would have kept the construction sector on the back foot while causing travel disruption within the services sector.

Santander holds out little hope for a jump in manufacturing activity, completing the picture and ensuring all three main UK sectors shrank month-on-month at the end of last year.

"The UK recession, if confirmed, looks set to be as short and shallow as they come. Looking ahead, we see reasons to be a little more upbeat on 2024, with economic surveys for January suggesting 2024 started on a better footing, shrugging off the year-end lethargy," says Willis.