UK recession is official

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 16 February 2024.

| 9 min read

The UK economy officially fell into recession in the second half of last year, as squeezed households cut back on spending. However, there was some positive news as UK retail sales surged in January, beating market expectations.

The S&P 500 closed above the 5,000-point milestone again, bouncing later in the week from losses resulting from US inflation data coming in higher than expected.

Nvidia’s market capitalisation ($1.789 trillion) overtook that of Alphabet ($1.78 trillion) and Amazon ($1.76 trillion).


The UK economy fell into recession in the second half of last year, as squeezed households cut back on spending. Gross domestic product (GDP) fell by a larger than expected 0.3% in the three months to December. This followed a drop of 0.1% in the third quarter, confirming a second consecutive quarter of falling national output – the technical definition of a recession. Nevertheless, the downturn was relatively shallow. Japan also unexpectedly fell into a recession after GDP contracted by a worse-than-expected 0.4% annually in the last three months of 2023. It came after the economy shrank by 3.3% in the prior quarter. However, the consumer started the new year on a brighter note, with UK retail sales rising 3.4% year on year in January following a downwardly-revised 3.3% drop in December, coming in comfortably above economists’ expectations for a 1.5% increase.

The UK’s annual consumer price index (CPI) inflation rate remained unchanged at 4% in January, coming in better than market expectations of a rise to 4.2%. However, Bank of England's governor Andrew Bailey said UK inflation remaining unchanged is "encouraging", but he hinted it would not mean earlier interest rate cuts. Mr Bailey said inflation, which measures how prices rise over time, staying at 4% last month "pretty much leaves us where we were". January saw the first monthly fall in food prices for more than two years, which offset a rise in gas and electricity costs. Food and non-alcoholic drink prices fell at a monthly rate of 0.4% in January, the first monthly decline since May 2021, driven by price cuts in January for bread and cereals, cream crackers, sponge cake and chocolate biscuits. Market expectations are now forecasting the first cut in interest rates in June.

The Labour Party decisively won two by-elections in former Conservatives seats.

Equities were hit early in the week by disappointing data on US inflation, which forced investors to confront the possibility that interest rates will stay high for months longer than they were hoping. Price growth dropped to an annual rate of 3.1% in January, above economists’ expectations of 2.9%. In December, the consumer price index was up 3.4% on an annual basis.

US retail sales dropped by 0.8% in January, below market expectations of a 0.2% fall. After stripping out automobiles and gasoline, core retail sales fell 0.6%, compared to expectations for an increase of 0.2%. The weakening consumer ?? is good news for the Federal Reserve, as strength in the economy has made it wary of signalling and cutting interest rates in the short term.

The European Union is planning new controls over borrowing and debt, with some flexibility for more spending on weapons and the green transition.

Interest in fixed income exchange-traded products mounts.


The Labour Party decisively won two by-elections in former Conservatives seats, overturning big majorities to take Wellingborough and Kingswood. In Wellingborough the party overcame a majority of more than 18,500 to take the Northamptonshire seat. The swing of 28.5% was the second biggest from the Tories to Labour in any post-war by-election. In Kingswood, where the Tories previously had a majority of more than 11,000, there was a swing of 16.4%.

The US Senate has passed an emergency spending package that would provide military aid to Ukraine and Israel, replenish US weapons systems and provide food, water and other humanitarian aid to civilians in Gaza.

A Joe Biden presidency would be better for Russia than a Donald Trump one, according to Russian President Vladimir Putin. Mr Putin said Mr Biden would be better for Russia “because he is a more experienced person, he is predictable, he is a politician of an old formation.” However, he added that Russia would “work with any leader of the US that gains the trust of the American people.”

Candidate Donald Trump seeks to take all the credit for the recent good performance of the US stock market. When asked about it, he said: "They think I am going to be elected". Equity performance under Trump and Biden.

A re-run of Joe Biden versus Donald Trump looks likely in this year’s US presidential election. But could the Democrats or Republicans change their candidate?

Company news

Natwest reported its highest annual profits since before the financial crisis and beat market expectations, boosted by higher interest rates. Full-year operating profit rose 20% annually to £6.2bn. The firm’s net interest margin, the gap between what a bank is earning in interest compared to the amount it is paying in interest on deposits, surged 19 basis points to 3.04%.

Mining group BHP said on Thursday that it will be hit with two first-half exceptional items totalling £5.3bn. BHP said the first hit was a £2.8bn charge against the carrying value of its Western Australia Nickel arm, while £2.5bn was linked to the failure of the Samarco dam in Brazil.

British Gas owner Centrica reported a sharp jump in annual profits at its retail division, where profits rose to £751m from £71m in 2022. However, group operating profit fell by 17% year on year after profits at its energy trading and asset management arm halved. Nevertheless, management upped its dividend by a third.

Relx posted annual results that met City expectations and announced a larger-than-expected share buyback. Underlying growth (both sales and profit) came in above historical levels and guidance points to another year of “strong” growth, with the improving trajectory being driven by the shift in its business mix to higher-growth analytics and decision tools. Performance is being led by its three larger divisions – Risk, Science, and Legal – and a strong rebound at the pandemic-hit Events business as activity resumes and it benefits from a lower cost base. The full-year dividend was increased by 8%.

Shares in Close Bros were hit hard after the merchant bank scrapped dividend payouts for the current financial year and put 2025 shareholder rewards under review. The company is bracing for potential compensation costs from a motor finance review by the City watchdog. The Financial Conduct Authority (FCA) announced last month that it would review historic claims of unfair costs on discretionary car finance commissions and ensure consumers receive compensation if it uncovers evidence of widespread misconduct.

Property group Segro reported 6.5% rental growth in 2023, as occupier demand for logistics space remained strong. Net rental income grew 12.5% to £587m, including new developments and the rental growth within its existing portfolio. However, high interest rates resulted in falling property valuations. The group’s portfolio fell in value by 4.0% on a like-for-like basis to £17.8bn.

Amazon founder Jeff Bezos sold more than $4bn of shares in the online retailer and cloud hosting company. Mr Bezos, who is Amazon’s executive chair, last sold Amazon shares in 2021. Earlier this month, the company said he was planning to sell 50 million shares over the next year, which are worth around $8.4bn at current prices.

The Body Shop collapsed into administration in the UK less than three months after it was taken over by a private equity company, in a move that puts more than 2,200 jobs at risk. Aurelius, the German group that bought The Body Shop for £207m in November, said it had been unable to revive the fortunes of the business after dismal trading over Christmas and new year.

Elon Musk's X, formerly known as Twitter, granted subscription perks to designated terrorist groups and others barred from operating in the US, according to a pressure group. The Tech Transparency Project (TTP) found X had granted blue check marks to accounts tied to Hezbollah members, among others. X removed some ticks after the report, saying its security was "robust".

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UK recession is official

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