September 23, 2023

The UK economic system stagnated within the last quarter of 2022, narrowly avoiding a recession regardless of output shrinking by greater than anticipated in December.

Gross home product was unchanged between the third and fourth quarters of 2022, following a contraction within the earlier three months, in accordance with information printed on Friday by the Workplace for Nationwide Statistics.

That was in keeping with analysts’ expectations however was weaker than the 0.1 per cent growth anticipated by the Financial institution of England.

The flat studying means the UK averted a technical recession, normally outlined as two consecutive quarters of falling output.

Chancellor Jeremy Hunt stated that “avoiding a recession exhibits our economic system is extra resilient than many feared”.

“Nonetheless, we’re not out of the woods but, notably in the case of inflation,” he added.

The quarterly determine was boosted by progress in October and November when output was supported by the rebound after the additional financial institution vacation in September and spending for the World Cup.

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

Line chart of  showing UK economy stagnates in the final quarter of 2022

Darren Morgan, ONS director of financial statistics, stated: “In December, public companies had been hit by fewer operations and GP visits, partly as a result of influence of strikes, in addition to notably decrease faculty attendance. In the meantime, the break in Premier League soccer for the World Cup and postal strikes additionally brought on a slowdown.”

Within the fourth quarter, the UK economy was nonetheless 0.8 per cent under the extent in the identical interval of 2019, earlier than the pandemic. In distinction, the US economic system was up 5.1 per cent over the identical interval and output within the eurozone grew 2.4 per cent. The UK is the one G7 economic system to not have regained the bottom misplaced throughout the well being disaster.

The Bank of England expects the UK economic system to contract this yr and within the first quarter of subsequent yr, as excessive vitality costs and better borrowing prices weigh on spending. Output won’t get better to its pre-pandemic ranges till 2026, in accordance with its calculations.

Thomas Pugh, economist on the consulting agency RSM UK, stated the mixture of double-digit inflation, increased rates of interest and fewer fiscal help means households’ actual disposable incomes are set to shrink sharply within the first half of this yr. “The recession has simply been delayed relatively than cancelled,” he famous.

However the outlook has brightened because the summer season when gasoline costs had been increased — the BoE now expects a shallower recession than it forecast in November.

“Falling wholesale gasoline costs supply hope for households and the broader economic system — with inflation on observe to fall sharply later this yr,” stated James Smith, analysis director on the think-tank Decision Basis.

The detailed figures for the ultimate quarter of 2022 additionally confirmed that households and companies had been “proving resilient”, stated Paul Dales, chief UK economist at Capital Economics. Actual client spending marginally elevated and enterprise funding rose 4.8 per cent.

Authorities spending rose 0.8 per cent. The growth in these sectors was offset by a 3.2 per cent contraction in residential funding, ensuing from the rise in mortgage charges, and by the drag from internet commerce as exports fell, whereas imports rose.

“It appears as if the mixture of the federal government’s help and households and companies utilizing their money reserves has thus far cushioned the blow from the autumn in actual incomes,” defined Dales.

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