The UK economy officially entered into a recession at the end of 2023, according to data from the Office for National Statistics (ONS).

Figures show the economy contracted by 0.3 per cent in the final three months of the year.

Most economists were forecasting a 0.1 per cent decline in gross domestic product (GDP) between October and December.

The 0.3 per cent dip means the UK has dipped into a technical recession, 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.

The figures deal a blow to Prime Minister Rishi Sunak, who has promised to grow the economy as one of his five priorities.

Liz McKeown, ONS director of economic statistics, said: “Our initial estimate shows the UK economy contracted in the fourth quarter of 2023.

“While it has now shrunk for two consecutive quarters, across 2023 as a whole the economy has been broadly flat.

“All the main sectors fell on the quarter, with manufacturing, construction and wholesale being the biggest drags on growth.”

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

Hearts Standard: 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 recsion 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."