Yahoo Finance UK narrowly avoids recession despite December drop
The UK has avoided falling into recession at the end of last year even as the economy shrank last month, according to the Office for National Statistics.
Gross domestic product (GDP) fell 0.5% in December, however, the economy was flat at 0%. in the final three months of 2022, meaning the UK avoided recession.
The ONS says a lack of Premier League football because of the World Cup contributed to a contraction in output during the final month of 2022.
A negative figure would have met the technical definition of a recession because the economy contracted over the previous three months to September. A technical recession is generally defined as two consecutive quarters of negative growth.
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For 2022 at a whole, UK GDP increased by an estimated 4.0%, following a 7.6% increase in 2021, the ONS said.
Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), said: “The economy contracted sharply in December meaning, overall, there was no growth in the economy over the last three months of 2022.
“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.
“However, these falls were partially offset by a strong month for lawyers, growth in car sales and the cold snap increasing energy generation.
“Across 2022 as a whole, the economy grew 4%. Despite recent squeezes in household incomes, restaurants, bars and travel agents had a strong year.
“Meanwhile, health and education also began to recover from the effects of the pandemic.”al three months of 2022, meaning the UK avoided recession.
GDP fell 0.5% in December, while services fell 0.8%, production grew 0.3% and construction was flat (0.0%).
➡️ https://t.co/urbVJbOboc pic.twitter.com/tq97evuz0P— Office for National Statistics (ONS) (@ONS) February 10, 2023
Services sector GDP shrank by 0.8% in December alone, which helped drag the wider economy down by 0.5% in December.
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Chancellor Jeremy Hunt warned the UK was “not out the woods yet” after ONS data showed the economy narrowly avoided recession between October and December last year.
He said: “The fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared.
“However, we are not out the woods yet, particularly when it comes to inflation.
“If we stick to our plan to halve inflation this year, we can be confident of having amongst the best prospects for growth of anywhere in Europe.”
"We're not out of the woods yet."
Chancellor Jeremy Hunt says the fact the UK avoided recession in the second half of last year shows the economy has an "underlying resilience".
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📺 Sky 501, Virgin 602, Freeview 233 and YouTube pic.twitter.com/HlJHCINL7f— Sky News (@SkyNews) February 10, 2023
Adam Cole, chief currency strategist at RBC Europe, predicts the economy will shrink in the current quarter.
"The monthly GDP outturns for October and November and December mean that the UK economy likely avoided a recession in calendar year 2022, if only just.Relief is likely to be short lived, however. The January PMI surveys suggested that activity weakened at the beginning of Q1 2023 and we currently see GDP contracting by 0.3% q/w," he said.
Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, warns that the cost of living crisis will continue to hit households this year:
He said: "Today’s figures confirm that the UK has escaped recession by the skin of its teeth in 2022. With December’s contraction of 0.5%, skirting recession by the slimmest of margins, the UK has achieved a minor economic victory.November’s 0.1% growth came as a significant surprise, with England’s footballers providing sufficient cheer to temporarily offset the negative effects of elevated inflation and rising rates.
"But the footballers have now packed up and come back home, bringing an end to this economic reprieve.We are still in for the downturn which so far has been barely kept at bay. It will be shorter and shallower than previously thought, as per the Bank of England’s forecasts.
"The lagged impact of earlier base rate increases combined with additional policy tightening will ensure it happens.However, whether we are officially in recession will not make much difference to most people – it will simply feel like a continuation of the present sluggishness and cost-of-living woes."
James Smith, research director at the Resolution Foundation, said: “The UK avoided a rapid return to recession last year by the narrowest of margins. But it is not out of the woods yet, and families are still living through a living standards downturn.
“The longer-term picture is more worrying, with the UK economy yet to return to its pre-pandemic size having suffered a prolonged period of weak growth since the financial crisis.
“However, falling wholesale gas prices offer hope for households and the wider economy – with inflation on track to fall sharply later this year.”
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