UK narrowly avoids recession — but no growth

The British economy did not expand in the final three months of last year, official figures show

Shoppers at a fruit and vegetable market in Leeds. EPA
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The UK economy did not grow in the last three months of 2022, figures from the Office for National Statistics showed on Friday.

The ONS numbers show that Britain may have narrowly avoided a technical recession, which is two consecutive quarters of negative growth. The economy shrank by 0.3 per cent in the third quarter of last year.

“The economy contracted sharply in December, meaning, overall, there was no growth in the economy over the last three months of 2022,” said Darren Morgan, director of economic statistics at the ONS.

“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.

“However, these falls were partially offset by a strong month for lawyers, growth in car sales and the cold snap increasing energy generation.

“Across 2022 as a whole, the economy grew 4 per cent. Despite recent squeezes in household incomes, restaurants, bars and travel agents had a strong year.

“Meanwhile, health and education also began to recover from the effects of the pandemic.”

“Not out of the woods yet”

British Chancellor Jeremy Hunt said the UK economy was not 'out of the woods yet' after figures showed it avoided recession. AP

UK Chancellor Jeremy Hunt warned the UK was “not out the woods yet”.

“The fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared,” he said.

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

“If we stick to our plan to halve inflation this year, we can be confident of having amongst the best prospects for growth of anywhere in Europe.”

Meanwhile, opposition Labour shadow chancellor Rachel Reeves called for “urgent measures” to be brought forward to alleviate the cost-of-living crisis.

“Today's figures show us how — despite Britain's great potential — our economy is stuck in the slow lane,” she said.

“We must bring in urgent measures to prevent yet more harm from the cost-of-living crisis, using a proper windfall tax on oil and gas giants to stop the energy price cap going up in April so that people have more money in their pockets.”

Laura Suter, head of personal finance at AJ Bell, said that the UK had avoided a technical recession “by a hair’s breadth”.

“But while we can’t slap the badge of ‘recession’ on the economy, it’s clear the UK is struggling and everyone is feeling the effect of the malaise in the country’s economy,” she said.

“This economic no-man’s land of no contraction or no growth won’t have people celebrating in the street, particularly considering GDP [gross domestic product] is 0.8 per cent below its pre-pandemic level.”

Probable recession later this year

British business agreed with the Chancellor that the UK was “not out of the woods yet”.

“We may have avoided a technical recession late last year, but we probably won’t avoid one this year. While we expect that the downturn will be shallow, if we act now, we can make the recession even shorter than predicted,” said Ben Jones, lead economist at the Confederation of British Industry.

“All eyes are on the Chancellor’s March budget, when businesses will be looking for a bolder approach to tackling labour and skills shortages, and falling business investment.

“In particular, firms will be looking for a permanent replacement to the super-deduction, as well as a focus on innovation and the green economy, to help boost economic growth in the years ahead.”

The Bank of England predicted last week that the UK economy would shrink in each quarter of 2023.

"We suspect the drags from high inflation and high interest rates will trigger a recession this year," said Paul Dales at Capital Economics.

Revised figures

For many economists the fact that the UK has not fallen into recession now is a moot point, given that the GDP figures out on Friday were preliminary and could well be revised before the end of March.

"The UK avoided a recession last year but by the slimmest of margins. Going by recent data revisions, today's figures could well be revised downwards in a few months, painting a very different picture," said Debapratim De, an economist at Deloitte.

Economists are more concerned about the momentum of the UK economy.

"Out of 35 estimates for UK growth in the first quarter of 2023, 34 are negative, said Guy Foster, chief strategist at wealth manager RBC Brewin Dolphin.

"They are universally negative for Q2, the start of which will see tax increases hitting all UK workers, skewed towards higher earners. These estimates are probably a little stale with the external growth picture looking a little better," he added.

The GDP numbers follow a bleak prediction from the International Monetary Fund (IMF) that the UK would be the only country in the group of seven rich nations with negative growth in 2023.

In 2020, the UK suffered the biggest contraction among the G7 owing to economic fallout from the Covid-19 pandemic. Britain is also the only G7 member that has not yet returned to its pre-pandemic level of output.

UK economic activity is 0.8 per cent below its 2019 level, the ONS said.

Across 2022 as a whole, Britain's economy grew by 4 per cent, after achieving 7.6 per cent growth in 2021, as it recovered from the Covid pandemic.

Business investment in the final quarter of 2022 was 13.2 per cent higher than a year earlier, and is now back to 2019 levels, before the pandemic.

Updated: February 10, 2023, 11:22 AM