The UK economy avoided falling into a recession in the first quarter of 2023, figures from the Office for National Statistics confirmed on Friday.
The economy grew by 0.1 per cent in the first quarter but has shrunk by 0.5 per cent since the first quarter of 2019, before the Covid-19 pandemic.
The ONS numbers also showed that households' real disposable income was 0.8 per cent smaller than in the final quarter of last year, reflecting the rise in prices for energy and food.
Higher inflation meant people were dipping into savings to cover themselves.
The ONS said the savings ratio fell to 8.7 per cent in the first quarter, compared with 9.4 per cent in the last quarter of 2022.
“Households took money out of their savings accounts at a record level while the amount of new mortgage and remortgage borrowing fell,” said Darren Morgan, director of economic statistics at the ONS.
Looming recession
With the 13th rise in interest rates and more predicted to come as the Bank of England battles “sticky” inflation, many analysts now think a technical recession later in the year is a high probability.
“The final Q1 2023 gross domestic product data confirms that the economy steered clear of a recession at the start of 2023,” said Ashley Webb, UK economist at Capital Economics.
“But with around 60 per cent of the drag from higher interest rates yet to be felt, we still think the economy will tip into one in the second half of this year.”
The ONS's first-quarter figures only cover the period up to the end of March. Many argue that the real gloom surrounding the economy only really took grip from the beginning of April and culminated in the 0.5 per cent rise in interest rates earlier this month.
“The unfortunate fact is that the game has changed over subsequent months,” said Richard Hunter, head of markets at Interactive Investor.
“As cost-of-living pressures intensify, and with the Bank of England continuing its rate-hiking policy in an effort to tame inflation, there is little room for manoeuvre without tipping the UK towards recessionary territory.”
The fall in disposable income is of particular concern to analysts going forward, as up to 800,000 mortgage holders are set to come off their current fixed rate deals by the end of the year.
“Warning signs are already flashing madly, with household disposable income further eroded by the constant pain of price rises and fewer people with the ability to put a bit away for a rainy day or take advantage of the interest rate hikes which are causing such misery for so many,” said Danni Hewson, head of financial analysis at AJ Bell.
“With hundreds of thousands of mortgage holders about to be clobbered by increased monthly payments there’s little doubt the service sector is in for a rough ride.”
Ain Dubai in numbers
126: The length in metres of the legs supporting the structure
1 football pitch: The length of each permanent spoke is longer than a professional soccer pitch
16 A380 Airbuses: The equivalent weight of the wheel rim.
9,000 tonnes: The amount of steel used to construct the project.
5 tonnes: The weight of each permanent spoke that is holding the wheel rim in place
192: The amount of cable wires used to create the wheel. They measure a distance of 2,4000km in total, the equivalent of the distance between Dubai and Cairo.
Reading List
Practitioners of mindful eating recommend the following books to get you started:
Savor: Mindful Eating, Mindful Life by Thich Nhat Hanh and Dr Lilian Cheung
How to Eat by Thich Nhat Hanh
The Mindful Diet by Dr Ruth Wolever
Mindful Eating by Dr Jan Bays
How to Raise a Mindful Eaterby Maryann Jacobsen
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
Desert Warrior
Starring: Anthony Mackie, Aiysha Hart, Ben Kingsley
Director: Rupert Wyatt
Rating: 3/5
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
