City workers in Paternoster Square, where the headquarters of the London Stock Exchange is located, in the City of London, UK, on Thursday, March 2, 2023.
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Official figures on Friday showed that the UK economy expanded by 0.3% in January, beating expectations as it continued to fend off what economists see as an inevitable recession.
Economists polled by Reuters had expected a monthly increase of 0.1% in gross domestic product. The Office for National Statistics said that gross domestic product was flat during the three months to the end of January.
“The services sector grew by 0.5% in January 2023, after falling by 0.8% in December 2022, with the largest contributions to growth in January 2023 coming from education, transportation and warehousing, human health activities, arts and leisure and entertainment activities, all of which rebounded after falling in December 2022.”
Production fell 0.3% in January after growing 0.3% in December, while the construction sector fell 1.7% in January after stabilizing in the previous month.
The UK economy showed no growth in the last quarter of 2022 to avoid a narrow recession – generally defined as two quarters of negative growth – but contracted 0.5% in December.
The UK remains the only country in the Group of Seven (G7) countries that has not fully recovered the production lost during the Covid-19 pandemic. The Office for National Statistics said on Friday that monthly gross domestic product is now estimated to be 0.2% below pre-pandemic levels.
Both the Bank of England and the Office for Budget Responsibility have forecast a five-quarter recession starting in the first quarter of 2023, but the data has so far exceeded expectations.
Despite a better-than-expected January reading, economists still widely believe that activity is on a downward trajectory, with high inflation weighing on household income and business activity.
UK inflation slowed to 10.1% annually in January, continuing to contract after hitting a 41-year high of 11.1% in October, but remained well above the Bank of England’s 2% target.
Suren Theroux, director of economics at the Institute of Chartered Accountants in England and Wales, said the “modest” rebound in January suggested the economy remained on a “pessimistic trajectory”.
“We are likely to continue courting recession throughout most of 2023 as high inflation, higher taxes and the delayed impact of higher interest rates erode consumers’ spending power, despite the support from energy cost easing,” Theroux said.
Finance Minister Jeremy Hunt will present the government’s budget on Wednesday and is expected to announce further measures to manage the country’s cost of living crisis.
“The spring budget could have a significant impact on the UK’s growth prospects in the near term. While expanding energy subsidies will provide some relief to struggling households, aggressive tax increases risk undoing any remaining momentum from the economy,” Theroux said.
Tom Hopkins, portfolio manager at BRI Wealth Management, noted that it’s difficult to read the monthly figures at the moment, given distortions over the past six months – such as the funeral of Queen Elizabeth II and the World Cup – that have partly affected consumer services.
“The underlying trend in the economy appears to be a gradual contraction, thanks in part to the continuing downward trend in retail spending,” he said. “We expect a technical recession in the UK in the first half of this year, although not as bad as initially feared.”
This is a breaking news story and will be updated soon.
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