Falling inflation and rising sales fuel hope for a brighter 2024 as experts predict the UK will avoid a recession despite grim figures showing the economy shrank by 0.1% this summer

Britain is expected to avoid a recession and has a ‘brighter’ outlook for 2024, experts said yesterday – despite figures showing the economy shrank this summer.

Revised official data this week showed the UK’s gross domestic product fell 0.1 per cent between July and September, putting the country on the brink of recession.

And the economy was flat between April and June, down from a previous estimate of 0.2 per cent growth, according to the Office for National Statistics.

But the gloomy GDP announcement was offset by more optimistic predictions. Commentators said the clouds over the economy are ‘beginning to lift in time for the new year’.

Economists believe Britain can avoid a recession, which is when the economy contracts for two consecutive quarters. These hopes were boosted by positive data showing a steeper than expected drop in inflation and an uptick in retail sales.

Meanwhile, last month was the best November for British car production since 2020, helped by a rise in vehicles built for the overseas market and supply chain challenges easing.

And the FTSE 100 enjoyed a so-called Santa rally in December, up 2.7 per cent over the last month.

Retail sales volumes grew 1.3 per cent in November, beating the 0.4 per cent rise economists had predicted in the crucial Christmas trading period. 

Rishi Sunak yesterday pointed out that the UK economy has grown faster than that of other European countries.

Asked whether he was concerned about the risk of a recession, the Prime Minister told broadcasters: ‘Compared to the predictions at the beginning of the year, the economy has done better and we’ve actually grown faster than our European neighbours like Germany, for example.

‘But of course, we want to see more growth and that’s why in the Autumn Statement a few weeks ago, the Chancellor cut taxes for businesses that are investing to help drive our future growth, and the independent experts have said [it] will do exactly that.

‘But also because we’ve done a good job having inflation, we’re able to now cut taxes for families, and that tax cut is significant.’

Julian Jessop, economics fellow at the Institute of Economic Affairs think-tank, said the statistics suggested ‘the UK economy picked up a bit towards the end of 2023 and should therefore still avoid a recession’.

Inflation fell to 3.9 per cent in November, compared with 4.6 per cent in the previous month, according to ONS data published this week.

This added to expectations that interest rates have peaked and will be cut in 2024, which would make mortgage and other borrowing costs cheaper for consumers.

Mr Jessop added: ‘The sharp fall in inflation should be a real gamechanger for the UK economy in 2024, easing the pressure on real incomes, allowing interest rates to fall and creating more room for tax cuts. The prospects for next year therefore look a little brighter.’

Chancellor Jeremy Hunt said: ‘The medium-term outlook for the UK economy is far more optimistic than these numbers suggest.’

Richard Carter, head of fixed-interest research at Quilter Cheviot, said: ‘The positive news is that the backdrop hasn’t been quite as negative as feared and the clouds do seem to be beginning to lift in time for the new year.’