The UK economy may avoid tumbling into recession until later this year as consumers kept spending through the worst cost-of-living squeeze in memory.
(Bloomberg) — The UK economy may avoid tumbling into recession until later this year as consumers kept spending through the worst cost-of-living squeeze in memory.
Gross domestic product unexpectedly rose 0.1% in November, the Office for National Statistics said Friday. Economists had expected a small decline after growth in October.
November’s figures mean the UK economy probably avoided a recession in the final months of 2022. The ONS said December’s GDP figure would have to fall about 0.5% to deliver a contraction for the fourth quarter.
The figures may strengthen calls for further interest-rate rises as the Bank of England debates how to rein in inflation, which is lingering near the highest in four decades. The central bank had anticipated a recession was already underway in the latter half of 2022 that would last until 2024.
“Today’s better-than-expected data will be encouraging for businesses, but may also cause a cautious Bank of England to continue raising rates unnecessarily,” said Kitty Ussher, chief economist for the Institute of Directors. “The risk now is that rates will rise too far.”
What Bloomberg Economics Says …
“The small GDP gain in November 2022 makes it unlikely the economy fell into recession at the end of last year. It also looks like the current downturn could be shallower than we had initially expected. That won’t matter much for the Bank of England’s next policy decision — the committee is laser-focused on inflationary pressures. It could, however, carry more bearing further out. If the economy doesn’t weaken enough to cool the labor market, the BOE may be forced to do more.”
—Ana Andrade, Bloomberg Economics. Click for the REACT.
Despite the surprise boost in November, monthly GDP is now estimated to be 0.3% below its pre-coronavirus levels. Economists and the central bank warn that a squeeze on incomes will depress activity in the economy, setting up one of the longest slumps on record.
November’s figures may have been helped by the reversal of a tax rise on payrolls, giving a boost to disposable incomes during the month. Prime Minister Rishi Sunak’s government is both trying to fight inflation and cushion consumers from rising energy bills.
“We have a clear plan to halve inflation this year – an insidious hidden tax which has led to hikes in interest rates and mortgage costs, holding back growth here and around the world,” said Chancellor of the Exchequer Jeremy Hunt.
World Cup football matches boosted consumer-facing businesses and helped offset the impact of strikes, the ONS said. Services as a whole rose quicker than expected, driven by recruitment agencies that saw a monthly gain of 2.1%. Those factors helped the economy shrug off a sharper-than-expected slump in manufacturing.
Strikes directly hit activity in the postal and railway industries but also spilled over to a wide range of other sectors, including wholesale trade and jewelry. While it said it could not put an exact figure on the economic blow from industrial action, the impact could be larger in December when walkouts spread.
Output in the transport and postal sectors fell by 4.7% and 3.1% respectively in November, hinting at the impact of strikes which rocked the UK.
Other service sectors that saw strong growth included telecoms and computer programming, social work and hospitality as people went out to watch the World Cup matches.
However, sport activities saw a fall in output as people watched games rather than played them.
Separate figures on trade also helped the GDP figures. The UK’s trade deficit, excluding precious metals, narrowed by £6.5 billion ($7.9 billion) to £20.2 billion in the three months to November after the slump in energy prices dragged down goods imports from non-EU countries.
Read more:
- Why Strike-Averse Britain Is Gripped by Labor Unrest: QuickTake
–With assistance from Philip Aldrick, Lucy White and Tom Rees.
(Updates with comments from analysts and chancellor.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.
