UK expected to escape recession - for now - in near-miss for the economy at the end of 2022
The UK looks set to narrowly avoid crossing the line into recession this week, with economic data for the final quarter of last year poised to revel flatlining growth.
A recession only kicks in after two consecutive quarters in which the value of all the goods and services produced by a nation shrinks. While that happened in the third quarter, the final three months of 2022 featured the first Christmas free of Covid restrictions in years, meaning festive season spending may have come to the rescue.
Even it has, it will be a very close call and the relief may prove short-lived, with hard-pressed consumers juggling high energy costs, double-digit inflation and the cost-of-living crisis.
City experts expect the gross domestic product data - which measures the size of the UK’s economic output - to hold dead steady at 0.0% from the third quarter. Data for the month of December is set to show a drop of 0.2% or 0.3% from November.
HSBC called the release – due from the Office for National Statistics at 7 a.m. on Friday – as the week’s “main event,” saying the data “could provide a psychological boost.” But with the numbers so close to call, and changes to the readout possible when it is updated later, the bank also pointed to “the potential for revisions and/or weak demand in [the first half of] 2023,” which “means it is far from assured that the UK avoids technical recession.”
Francesco Pesole, a strategist at Dutch Bank ING agreed, predicting recession will be “narrowly avoided”, this week, but a contraction between the first and second quarters of 2023 is “more than possible,” although it “could be milder than previously expected thanks to lower energy prices.”
The hotly anticipated numbers are out from the Office for National Statistics at 7 a.m. on Friday. They will be also be scrutinised in Downing Street and at the Bank of England, as well as by householders across London keen for insight into where interest rates might peak.
BoE policymakers are on alert for the impact of their programme of interest rate rises on the underlying economy, as their priority remains getting inflation down from double digits toward its 2% official target. The Monetary Policy Committee lifted some of the gloom around its official outlook for the economy last week, when it lifted interest rates to 4% with a 0.50% hike. But it still forecasts a recession, albeit shorter and shallower than previously feared.
Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have said halving inflation is a top priority, although City experts point out that falling energy costs will do much of the work unaided by politicians.
