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The UK economy stagnated in the final quarter of 2022, narrowly avoiding a recession despite output shrinking by more than expected in December.

Gross domestic product was unchanged between the third and fourth quarters of 2022, following a contraction in the previous three months, according to data published on Friday by the Office for National Statistics.

That was in line with analysts’ expectations but was weaker than the 0.1 per cent expansion expected by the Bank of England.

The flat reading means the UK avoided a technical recession, usually defined as two consecutive quarters of falling output.

Chancellor Jeremy Hunt said that “avoiding a recession shows our economy is more resilient than many feared”.

“However, we are not out of the woods yet, particularly when it comes to inflation,” he added.

The quarterly figure was boosted by growth in October and November when output was supported by the rebound after the extra bank holiday in September and spending for the World Cup.

However, the economy shrank by 0.5 per cent between November and December, worse than the 0.3 per cent contraction forecast by economists polled by Reuters.

Darren Morgan, ONS director of economic statistics, said: “In December, public services were hit by fewer operations and GP visits, partly due to the impact of strikes, as well as notably lower school attendance. Meanwhile, the break in Premier League football for the World Cup and postal strikes also caused a slowdown.”

In the fourth quarter, the UK economy was still 0.8 per cent below the level in the same period of 2019, before the pandemic. In contrast, the US economy was up 5.1 per cent over the same period and output in the eurozone grew 2.4 per cent. The UK is the only G7 economy not to have regained the ground lost during the health crisis.

The Bank of England expects the UK economy to contract this year and in the first quarter of next year, as high energy prices and higher borrowing costs weigh on spending. Output will not recover to its pre-pandemic levels until 2026, according to its calculations.

Thomas Pugh, economist at the consulting firm RSM UK, said the combination of double-digit inflation, higher interest rates and less fiscal support means households’ real disposable incomes are set to shrink sharply in the first half of this year. “The recession has just been delayed rather than cancelled,” he noted.

But the outlook has brightened since the summer when gas prices were higher — the BoE now expects a shallower recession than it forecast in November.

“Falling wholesale gas prices offer hope for households and the wider economy — with inflation on track to fall sharply later this year,” said James Smith, research director at the think-tank Resolution Foundation.

The detailed figures for the final quarter of 2022 also showed that households and businesses were “proving resilient”, said Paul Dales, chief UK economist at Capital Economics. Real consumer spending marginally increased and business investment rose 4.8 per cent.

Government spending rose 0.8 per cent. The expansion in those sectors was offset by a 3.2 per cent contraction in residential investment, resulting from the rise in mortgage rates, and by the drag from net trade as exports fell, while imports rose.

“It seems as though the combination of the government’s support and households and businesses using their cash reserves has so far cushioned the blow from the fall in real incomes,” explained Dales.

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