The UK fell into recession in the final quarter of 2023, with GDP dropping by 0.3% between October and December, the Office for National Statistics (ONS) has stated.

This drop in GDP follows a smaller decrease between July and September, when GDP fell by 0.1%.

Overall, the latest ONS estimates suggest that across Q3 and Q4 2023, the UK economy contracted by a cumulative 0.5%.

Over Q4, 12 out of the 20 sub-sectors experienced a contraction, which is up from 10 sub-sectors in Q3.

Construction was the sector which saw the biggest drop in terms of output (1.3%), whilst other sectors also saw respective drops, including production (0.1%) and manufacturing (0.9%). Output in services also fell by 0.2%

However, for the whole of 2023, output for both services and construction increased by 0.3% and 2.0% respectively.

Head of financial analysis at AJ Bell, Danni Hewson, said: "The word recession strikes a chord with all of us. We’ve lived through other downturns and felt the impact of those on our own lives, not least the post-pandemic malaise that’s still gripping the country.

"The UK economy has been boggy for the last couple of years and all sectors have struggled to find their feet. The big question now is how will these figures play into the Bank of England’s (BoE's) determination of when interest rates should start to come down?

"With construction seeing the biggest decline in output in the third quarter there is an argument to be made that hikes have already done the job they were intended to do. But cutting interest rates won’t be a panacea. With growth over 2023 clocking in at the weakest since the financial crisis there are no easy answers."

In expenditure terms, there was also a fall in the volume of net trade (1.6%), household expenditure (0.1%) and Government consumption (0.3%) in Q4, although this was partially offset by an increase in gross capital formation (1.4%).

UK and Japan were the only two countries in the top global economies to slip into a recession in the fourth quarter. As a result, Japan has now fallen from being the world’s third-largest economy to the fourth, being overtaken by Germany.

Head of money and markets at Hargreaves Lansdown, Susannah Streeter, added: "There are a few green shoots of hope emerging this year, with business and consumer confidence increasing in January, but it’s going to be a hard slog back to meaningful expansion. This is a tough backdrop for the Conservative party to fight two by-elections, when household finances and the UK’s economic health is so high up the agenda for voters. It does raise hopes slightly though that the BoE will begin cutting rates from the middle of the year."

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