Britain Avoids Recession Amid Strikes


The United Kingdom (UK) just managed to avoid a recession in the final quarter of 2022, as reported by the Office for National Statistics (ONS). Despite a decline of 0.2% in the previous three months, the country’s gross domestic product (GDP) remained unchanged in the fourth quarter. However, the 0.5% drop in output in December alone highlights the ongoing fragility of the UK economy.

Despite this, the country avoided back-to-back quarterly contractions, which is the definition of a technical recession.

According to Yael Selfin, chief economist at KPMG UK, although the UK economy ended the year on a slightly positive note, it is expected to fall into a mild yet prolonged recession throughout 2023. The December figures are a clear indication of the continued fragility of the UK economy.

The ONS will make another estimate at the end of March, with the possibility that the UK may have been in a recession. The risks to the economy include a cost-of-living crisis, industrial action, and the impact of extra holidays and sporting events.

The GDP figures have implications for both the Bank of England’s monetary policy and the Treasury’s planning for the budget on March 15. According to Kitty Ussher, chief economist at the Institute of Directors, the bank may need to raise interest rates a little further to control inflation, which reached a 41-year high last year.

On the other hand, the government may find that it has higher tax revenues at its disposal for the budget. Chancellor of the Exchequer Jeremy Hunt welcomed the figures but emphasized the need to address inflation.

Despite the headline figures, there are some positive signs. Ussher points out that the weakness was mainly in the public sector, particularly in health and education, and the postponement of sporting events. She also mentioned that if it weren’t for these factors, the economy would have grown in the quarter.

In terms of inflation, the total bill for wages and salaries in 2022 increased by 7.4%, the largest increase since 1999. This will be a concern for the Bank of England. On the other hand, household spending increased by 0.1% in the fourth quarter, suggesting that consumers are managing the worst cost-of-living crisis in generations. In December, sports activity declined by 17% due to the postponement of the UK’s domestic Premier League.

Business investment increased by 4.8% in the final three months of 2022, returning to pre-pandemic levels. This is a sign that companies are increasing spending despite concerns about the economic outlook. The UK economy grew by 4% in 2022, slower than the 7.6% growth in 2021 when the country was recovering from pandemic lockdowns.

Output in manufacturing and construction stalled in December, but the overall industrial production increased by 0.3% due to a boost in utility output from the cold weather. The dominant services industry, on the other hand, declined by 0.8% in December, more than twice the expected pace. Consumer-facing services dropped by 1.2%, reflecting poor retail sales and an escalation of strikes. The ONS estimated that the strikes curtailed output across a wide range of industries.

UK economy is facing significant challenges, and the living standards of ordinary families are expected to suffer. According to George Dibb, head of the center for economic justice at the Institute for Public Policy Research, the government is merely tinkering with the edges, and unless the root of the problem is fixed, the country is unlikely to see meaningful growth anytime soon.


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