UK economy avoids recession but businesses still wary

People shop to buy fruit and vegetables at a stall in Lewisham Market, south east London, Britain, March 9, 2023. REUTERS/Hannah McKay/File photo

LONDON  – Britain’s economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households’ finances from state energy bill subsidies but falling investment by businesses.

With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1 percent between October and December after a preliminary estimate of no growth.

GDP in the third quarter was also revised to show a 0.1-percent contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.

Two consecutive quarters of contraction would have represented a recession.

Despite the improvement, British economic output remained 0.6 percent below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.

“The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy’s performance was lackluster over the second half of 2022 as the cost of living crisis hit hard,” Investec economist Philip Shaw said.

The International Monetary Fund p of Sforecast in January that Britain would be the only Groueven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10 percent.

Since then, a string of economic data has come in stronger than expected by analysts.

Ruth Gregory at Capital Economics said Friday’s figures showed high inflation had taken a slightly smaller toll than previously thought.

“But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year,” she said.

House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.

The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.

Britain’s dominant services sector rose by 0.1 percent, boosted by a nearly 11 percent jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.

Manufacturing grew by 0.5 percent, driven by the often erratic pharmaceutical sector, and construction grew by 1.3 percent.

Individuals’ savings were boosted by the government’s energy bill support scheme and households’ disposable income increased by 1.3 percent after four consecutive quarters of negative growth.

The BoE expects Britain’s economy to have contracted by 0.1 percent in the first three months of 2023 but it forecasts slight growth in the second quarter.

The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.

But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.

Business investment falls

The data suggested businesses remained cautious. Business investment fell 0.2 percent in quarterly terms, a sharp downgrade from a first estimate of a 4.8-percent rise after changes to the way the ONS calculates seasonal adjustments.

Earlier on Friday, a survey painted a more upbeat picture for businesses.

Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.

The ONS said Britain posted a shortfall in its current account in the fourth quarter of 2.5 billion pounds ($3.1 billion), or 0.4 percent of GDP.

Excluding volatile swings in precious metals, the shortfall fell to 3.3 percent of GDP from 4.2 percent in the third quarter.

The ONS said increased foreign earnings by companies, particularly in the energy sector, helped narrow the deficit.

Britain’s financial account surplus – which shows how the current account deficit was funded – comprised large net inflows of short-term, “hot” money. Foreign direct investment was negative in net terms for a sixth quarter running.

($1 = 0.8073 pounds)

https://business.inquirer.net/385969/uk-economy-shows-zero-growth-narrowly-avoiding-recession