UK economy dodges recession but stagnates towards end of 2022

The UK economy stagnated in the final quarter of 2022, narrowly avoiding a recession despite output shrinking by more than expected in December.

Gross domestic product was unchanged between the third and fourth quarters of 2022, following a contraction in the previous three months, according to data published on Friday by the Office for National Statistics.

That was in line with analysts’ expectations but was weaker than the 0.1 per cent expansion expected by the Bank of England.

Two consecutive quarters of falling output are usually referred to as a technical recession.

The quarterly figure was boosted by growth in October and November. However, the economy shrunk by 0.5 per cent between November and December as widespread strikes and the cost of living crisis hit household finances and business activity. The reading was lower than the 0.3 per cent contraction forecast by economists polled by Reuters.

Darren Morgan, ONS director of economic statistics, 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.”

In the fourth quarter, the UK economy was still 0.8 per cent below the level in the same period of 2019, before the pandemic. In contrast, the US economy was up by 5.1 per cent over the same period and output in the eurozone grew by 2.4 per cent.

The Bank of England expects the UK economy to contract this year and in the first quarter of next year, as high energy prices and higher borrowing costs weigh on spending. Output will not recover to its pre-pandemic levels until 2026, according to its calculations.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, expects output to fall in the first half of this year as consumer confidence is low, the government is pausing its cost of living grants, and many businesses are cutting costs and postponing new projects in response to the rise in their borrowing costs. “The recession has been delayed, not averted,” he said.

Chancellor Jeremy Hunt said that “avoiding a recession shows our economy is more resilient than many feared”.

“However, we are not out of the woods yet, particularly when it comes to inflation,” he added.