BUSINESS LIVE: GDP shrinks 0.3% in Q4; Close Brothers scraps divi; Jet2 ups profit expectations

Close Brothers Group will not pay out any dividends for the current financial year, with the lender telling investors there is ‘significant uncertainty’ about the outcome of the Financial Conduct Authority review into the motor finance industry.

Thomas Pugh, UK economist at RSM UK:

‘The 0.3% q/q contraction in GDP in Q4 last year means the UK finally slipped into the long-awaited recession in the second half of last year. However, that recession is probably already over and will go down as one of the smallest the UK has experienced.

‘Admittedly, the economy will remain in stagnation for the first half of this year, but by the summer inflation should be back at around 2%, interest rates will likely be falling and consumers may well be enjoying some significant tax cuts. This will kick start a consumer-spending led recovery that should see the economy finally return to growth.

‘Indeed, a recession gives the Bank of England more cover to pivot towards cutting interest rates as early as the Spring.

‘Overall, today’s data reinforces our view that Q4 last year will represent the nadir of a particularly painful period of stagnation for the UK economy. But we are now at a turning point. Interest rate cuts are likely to come in the Spring and growth should gradually improve in the first half of this year and pick up further after the summer and into 2025.’

Marcus Brookes, chief investment officer at Quilter Investors:

‘UK GDP contracting in both December and the fourth quarter of 2023 is mainly due to persistently high inflation, structural weaknesses in the labour market and low productivity growth, but also adverse weather conditions.

‘These factors affected the performance of the services and construction sectors, which are the main drivers of the UK economy. Retail sales also declined sharply in December, in the face of ongoing high inflation and interest rates as well as changing buying patterns.

‘Some of these challenges are temporary and have already started to ease. The inflation rate held steady at 4% yesterday when many were predicting an increase. Over the coming months, we expect inflation to fall, potentially easing the pressure on UK households, and supporting the recovery of the consumer-driven economy.

‘The key indicator to watch is inflation in the services sector, which accounts for the bulk of the UK’s economic activity and employment and reflects the strength of wage growth and consumer demand, which are crucial for the UK’s recovery. As inflation steadies and then reduces, the Bank of England is more likely to cut interest rates to stimulate economic activity and investment.

‘The UK economy faces challenges and uncertainties, but it also has many strengths and opportunities. It has a dynamic economy with a skilled and flexible workforce, and the UK is expected to overcome many of the current difficulties and emerge stronger and more resilient in the future.’

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services:

‘Today’s GDP figures confirm that the UK slipped into very mild economic contraction towards the end of 2023, with subdued economic activity dragging into the festive season.

‘The data is evident of deflated activity across all key sectors of the economy, from manufacturing to service and retail, as well as construction activity, which was negatively impacted by inclement weather.”

‘Nonetheless, while there is an impression of economic stagnation, brighter times surely lie ahead. As winter rolls away, the lagged impact of high inflation and interest rates will work its way through the economy and inflationary pressures will settle, allowing the Bank of England to lower the base rate come summertime.’

The British economy shrank by 0.3 per cent in the final three month of 2023, a bigger drop than expected, leaving the country in a technical recession, fresh data from the Office for National Statistics shows.