The UK has narrowly avoided a recession, after a fractious financial quarter for businesses, economistsand national markets. The nation was predicted to enter its longest-ever recessive period, after months of high inflation and decreased consumer spending threatened to throw GDP growth into negative numbers. However, recent figures have indicated that there is some hope on the horizon for the UK’s ailing economy.
A Slim Margin
New official figures from the Office for National Statistics (ONS) have revealed that the UK experienced 0.1% growth in Q4 of 2022. This slim margin of growth ensured that the UK did not fall into a recession in2022, causing relief amongst businesses in all sectors.
Here, it is important to understand the makings of a recessive economy. A recession is not an event, per se, but a market condition defined by national economic performance over time. A country enters a recession when it experiences two consecutive financial quarters of stagnant or negative growth. Q3 of 2022 saw GDP shrink by 0.1%, leaving the prospect of a UK recession probable. The longstanding cost-of-living crisis caused experts to theorise that the predicted recession would be one of the longest experienced by the UK.
Positive Outlooks
The UK’s narrow escape from recession conditions has been welcome news for UK businesses, many of which were braced for a difficult year of moderating investor expectations against narrowing margins. The key catalyst for concern came from the cost-of-living crisis, which saw the rate of inflation exceed 10% at key points in 2022 – fuelled by rises in the cost of energy and consumer goods.
Grocery items increased disproportionately to other items, rendering everyday expenditure much higher for the average household. The result was a shrink in consumer expenditure, which spooked many businesses already struggling to keep afloat. The GDP growth news, though, indicates that consumer spending has not shrunk considerably, giving crucial breathing room for businesses to adapt a little more equitably.
Market Response
The GDP growth forecast for 2023, however anaemic, has been something of a rallying call for the UK’s markets. Commodities markets are expected to experience interesting movements, for one; as an example, increased demand from central banks has driven a gold price forecast that tends towards the favourable.
Meanwhile, as businesses emerge from crisis management towards a sunnier outlook, the stock market is expected to enjoy a short-term uplift and some medium-term stability. While ultimately positive, some questions about extraneous factors such as employment rates remain – which could place downward pressure on the scope of growth beyond the current rate.
With a positive outlook in the short term, many businesses and investors are breathing a sigh of relief. The reprieve from recessive conditions may not be altogether long, though, and the felt reality of the economy at present continues to exact a heavy toll on the average household.
