Britain’s economy narrowly avoided sliding into recession by the smallest of margins, official figures revealed on Friday.
Although the Office for National Statistics said output in December fell by 0.5 per cent, the economy remained flat over the fourth quarter of 2022 thanks to positive figures for October and November.
That means it did not quite meet the technical definition of a recession — two consecutive quarters of negative growth. The economy shrank 0.2 per cent in the third quarter from July to September.
Chancellor Jeremy Hunt said the data showed the “underlying resilience of the UK economy” and highlighted the annual GDP growth of four per cent which he said made Britain the fastest growing advanced economy in the world.
But with energy bills and interest rates set to increase further this year, many economists predict the squeeze on household budgets will steer Britain into a recession
in 2023. Mr Hunt acknowledged the UK is “not out the woods yet”, adding that inflation, at 10.5 per cent in December, was still “much too high”. He added: “That is causing pain for families up and down the country.”
Shadow chancellor Rachel Reeves said Britain’s economy is “stuck in the slow lane” and that “working people are paying the price”.
The fall in GDP in December was worse than economists had predicted and was driven by a fall in retail trade in the run-up to Christmas as shoppers cut back “because of increased prices and affordability concerns”
But the absence of Premier League matches for much of December due to the World Cup in Qatar led to a 17 per cent fall in sports and recreation activities. Rail and postal strikes also played a part in the slowdown, the ONS said.
ONS director of economic statistics Darren Morgan said: “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.”
Annual GDP is estimated to have grown by 4 per cent in 2022, following growth of 7.6 per cent in 2021. But the UK economy is still 0.8 per cent smaller than it was before the Covid pandemic.
Last week the Bank of England softened its forecasts for this year saying that the expected recession would be shorter and shallower than previously feared with GDP falling 0.5 per cent.
Back in November the Bank had warned that the UK faced its longest recession since records began, with a downturn of 1.5 per cent expected to extend well into 2024.
Paul Dales, chief UK economist at Capital Economics, said the Government’s billions of pounds of support for households with their energy bills had prevented a sharper decline in output.
But he added: “Given that the drags from high inflation and high interest rates are very large, we still think the economy will enter a recession this year.”
Yaelâ¯Selfin, chief economist at KPMG UK, also predicted “more gloom ahead for the UK economy”. She added: “Prospects for growth are hamstrung by the ongoing squeeze on household incomes, higher interest rates, and continued uncertainty about the policy and geopolitical agenda, which could see GDP contract by 0.9 per cent this year.”
Tina McKenzie, policy chair at the Federation of Small Businesses said: “The 0.5 per cent fall in GDP in December is a red flag showing the economy stalled at the end of 2022, just when small firms were hoping for a traditional festive boost.”
The flatlining economy could spark renewed calls from some Tory MPs for Mr Hunt to cut taxes at next month’s Budget to boost economic growth.
On Thursday Pascal Soriot, chief executive of the pharmaceutical giant AstraZeneca, said the UK’s “discouraging” taxes had played a part in its decision to site a new £330 million plant in Ireland instead of north-west England.
Corporation taxes are set to rise in April from 19 per cent to 25 per cent.
But Prime Minister Rishi Sunak and Mr Hunt have said they must get public finances back in better shape and tackle inflation before considering tax cuts.
