- UK GDP shows zero growth in Q4 after a 0.2% contraction in Q3
- Production falls 0.5% in December, partly due to strikes
- The economy will grow by 4% in 2022, but still less than in 2019
- Economists expect Britain to enter recession in early 2023
- Gas imports push the goods trade deficit to a record high
LONDON, Feb 10 (Reuters) – The UK economy has not grown in the final three months of 2022 – enough not to slip into recession for now – but faces a difficult outlook for 2023 as households continue to struggle struggling with double-digit inflation.
Monthly gross domestic product data for December — when there were widespread strikes in the public sector, rail and postal services — showed a 0.5% decline, the Bureau for National Statistics said, larger than the 0.3% forecast.
Nonetheless, Friday’s numbers will bring some relief to Prime Minister Rishi Sunak and his Treasury Secretary Jeremy Hunt as they seek action to spur a recovery on their forthcoming annual budget on March 15.
Output fell 0.2% in the three months to the end of September – when many businesses briefly closed for Queen Elizabeth’s funeral – and a further consecutive fall in output in the fourth quarter would have fit Europe’s usual definition of a recession.
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Any respite is likely to be temporary. The Bank of England last week forecast that the UK would enter a shallow but protracted recession that would start in the first quarter of this year and last five quarters.
“Britain avoided recession last year, but by a tiny margin. After the latest data revisions, today’s numbers could well be revised down in a few months and paint a very different picture,” said Deloitte economist Debapratim De.
UK living standards have been hurt by a surge in inflation, which hit a 41-year high of 11.1% in October, and businesses and households will also be increasingly affected by the BoE’s rapid rate hike since December 2021.
Fourth-quarter output was still 0.8% below pre-pandemic levels, in stark contrast to other major advanced economies, which are now above their pre-pandemic size.
ING economist James Smith said he expects the UK economy to contract by between 0.3% and 0.4% in the first quarter of this year and a smaller amount in the second quarter.
“Recession, or at least a technical one, remains the base case. But it looks like it’s going to be very mild by historical standards,” he said.
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SLOW COVID RECOVERY
For all of 2022, the UK economy grew by 4.0% after growing 7.6% in 2021 as it recovered from a historic blow from the COVID-19 pandemic.
Business investment in the fourth quarter of 2022 was up 13.2% year-on-year and is now back at the same level as three years ago, before the COVID-19 pandemic.
But business groups have said future investment will be deterred by a steep increase in taxation of profits coming into effect in April, and on Thursday AstraZeneca (AZN.L) said it would move some production to Ireland, in part because the British Health Service a drove hard to haggle over drug prices.
Retailers also reported inventory reductions due to lower consumer demand.
The fall in GDP in December was driven by a drop in services, including fewer medical surgeries, doctor visits and lower school attendance – partly due to strikes – while the men’s World Cup in Qatar meant national matches at the highest level were postponed.
The drop would have been greater had it not been for unusually frigid weather leading to increased energy production, according to the Bureau of Statistics.
However, it also contributed to Britain’s largest-ever non-precious goods trade deficit, as the rising cost of gas imports from Norway pushed it to a record £64 billion ($78 billion) in the fourth quarter.
Hunt said Friday’s data showed the UK economy was more resilient than expected but still not free of dangers.
“We’re not out of the woods yet – inflation is still way too high. It’s causing pain for families across the country,” he told broadcasters.
Britain’s Trades Union Congress secretary-general Paul Nowak has urged Hunt to make room for bigger pay rises in next month’s budget – something Hunt said would be too costly and exacerbate inflation.
“It’s the fuel in the tank that our economy needs to get going again,” Nowak said.
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Edited by Kate Holton and Christina Fincher
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