It is increasingly likely that the UK economy could move into recession in the last quarter of 2023, according to analysts.

The UK’s private sector output dropped in September for the second month running, according to a well-tracked report by S&P Global and CIPS. While not disastrous in itself, the rate of decline accelerated – with falls in output in both the services sector and manufacturing.

Downward pressure

“Aside from pandemic disruptions, the latest drop in private sector business activity was the steepest since March 2009,” the report said, pointing to its purchasing managers’ index. “Weaker demand due to cost-of-living pressures and higher borrowing costs were cited by respondents.” 

In fact, the National Institute of Economic and Social Research said that there was an even chance that UK GDP would contract by the end of 2023 and a 60 per cent chance of recession by the end of 2024 – with persistent high inflation being a factor together with the effects of Brexit, COVID-19 and the war in Ukraine.

The director of the NIESR, Jagjit Chadha, told the Guardian newspaper that he saw signs of a return to the “British disease” of the 1970s, a period when the UK struggled with a combination of high inflation and weak growth.

“Until we ignite economic growth, a substantial portion of households will struggle with high housing and food costs, poor transportation, a creaking healthcare service and dwindling savings. It is not a promising inheritance for the next government,” he said.

Mixed results

Recessions are a regular feature of economies – with the UK having experienced four since 1980. An analysis by Harvard Business Review writers showed that while 17 per cent of the global listed companies they analysed went bankrupt, private or were acquired, 9 per cent flourished.

In a review article of the recession literature, Walter Frick concluded that key factors that separated the winners from the losers revolved around debt, decision making, workforce management and digital transformation.

“The underlying message across all areas is that recessions are a high-pressure exercise in change management, and to navigate one successfully, a company needs to be flexible and ready to adjust,” Frick said.