UK economy avoids recession but not out of woods – Hunt

The UK narrowly avoided falling into recession in 2022, new figures show, after the economy saw zero growth between October and December.

This is despite a sharp 0.5% fall in economic output during December, partly due to strike action, the Office for National Statistics (ONS) said.

Chancellor Jeremy Hunt said the figures showed “underlying resilience” but said “we are not out of the woods”.

The Bank of England still expects the UK to enter recession this year.

But it will be shorter and less severe than previously thought.

Mr Hunt said that high inflation remains a problem and continues to cause “pain for families up and down the country”.

Inflation – or the rate at which prices are rising – is slowing but at 10.5% remains close to a 40-year high.

The Bank of England has been putting up interest rates in a bid to tackle the soaring cost of living.

The ONS, which published the economic output figures, said there was no growth in the final three months of 2022.

This is the first estimate for the fourth quarter. The figures are often revised later on.

The ONS has just revised up its figures for the July to September quarter, to show that the economy shrank by 0.2% instead of previous estimate of a 0.3% fall.

A recession is typically defined as when the economy shrinks for two consecutive three-month periods. This usually means it’s performing badly and companies may make less money and cut jobs, leaving the government with less tax revenue.

The figures for December, however, were worse than expected.

Darren Morgan from the ONS said there was a fall in health services with fewer operations and GP visits. He also said that sporting activities, particularly football, were impacted because of the World Cup.

He said people were not “able to enjoy top-flight football due to the absence of Premier League football until Boxing Day, as the World Cup continued”.

“And finally rail and postal industries had a poor month. We certainly saw the impact of strikes as both fell heavily in December,” he said.

Strike action on trains caused disruption on the railways and on the roads in December. Postal workers also went on strike on a series of days in the run-up to Christmas.

Over 2022, gross domestic product (GDP) grew by 4% – the biggest increase of all G7 nations for last year.

However that compares to 7.6% growth in the previous year. The UK is also still the only G7 country in which the economy remains below pre-pandemic levels.

Rachel Reeves, Labour’s shadow chancellor, said the latest figures show the economy “is stuck in the slow lane”.

She added: “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.”

Liberal Democrat MP Sarah Olney, said: “Britain is dangling on over the edge of a recession after months of economic vandalism and chaos in Government.

“The blame for these gloomy figures lies squarely with the government, who have botched budgets, failed to tackle inflation and have no plan for growth.”

Zero growth over the final three months of last year will not be an occasion for getting the bunting out at the Treasury. It does mean there was no official recession in 2022 but the news here is what happened in December – a significant 0.5% fall in the economy.

The Office for National Statistics points to the impact of strikes in the health service and the World Cup delaying the normal football season among other factors. Clearly, the first of those factors could also weigh into this year.

The good news has been that most forecasters now predict 2023 will see a milder downturn than previously expected because of a fall in energy prices.

But the UK is exposed here. The UK economy is more sensitive to gas prices, to rising interest rates and has a specific issue about the failure of the workforce to return to its pre-pandemic size.

Today’s numbers and the early evidence from this year could still pile on the pressure for the government to do more over the workforce and over the further rise in domestic energy bills coming in the spring.

Economists are divided on whether the UK will enter or avoid a technical recession.

There was an upbeat take from the National Institute of Economic and Social Research, an economic think tank, which forecast that the UK will swerve a technical recession.

But both the Bank of England and the International Monetary Fund were gloomier, expecting the UK economy to shrink in 2023.

Antonia Sanchez-Toomey runs Tailormade Living in Enfield, north London, a company selling items such as scented candles and accessories for the home.

The BBC spoke to Ms Sanchez-Toomey to understand how a typical small business is faring in the current economic climate.

She says it is businesses like hers that suffer when the economy shrinks and people cut back on luxuries.

“We sell non-essential products,” she says.

“People are cutting back on those sorts of things. So they might still come in for a gift, but if they would buy a gift and then something for themselves, it’s the ‘something for themselves’ that’s not happening anymore.”

She says in 2022, sales were down year-on-year and down by about 40% over Christmas, which she says was a shock.

“And then we’ve just had our quietest January ever,” she say. “So we’ve had to make lots of cuts within the business. And that has affected some of my team members. And I’ve just got this real sense that consumer confidence is at an all-time low.”

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