UK GDP growth best amongst G7 nations in 2022, but are we now in recession?

According to the latest figures from the Office for National Statistics, UK GDP growth was flat in the three months to December 2022, meaning the UK managed to avoid recession last year.

GDP fell by 0.5% in December, which followed the growth of 0.1% in November and 0.5% in October.

In Q3 2022, GDP dropped by 0.3%, meaning the UK managed to avoid two consecutive quarters of GDP shrinkage, the technical requirement to be considered in a recession.

The services sector fell by 0.8% in December 2022, following unrevised growth of 0.2% in November. Output in consumer-facing services also fell by 1.2% in December 2022, which followed revised growth of 0.4% in November 2022, revised up from 0.2%.

However, the construction sector was flat in December 2022 after a revised fall of 0.5% in November 2022.

Gross domestic product (GDP) grew by 4% over the course of 2022, which was the biggest increase of all G7 nations. However, the UK economy grew 7.6% in 2021 is still 0.8% smaller than it was pre-pandemic.

The Bank of England still expects the UK to enter recession this year but says it will be shorter and less severe than first thought.

Jonathan Moyes, head of investment research at Wealth Club, comments on the latest ONS statistics, “A modest decline in GDP for December was a little weaker than expected. Nonetheless, it was enough to avoid what was widely predicted to be a recession in 2022.

“This release paints a very subdued picture for the state of the economy in Q4, although exceptionally cold weather and the postponement of premier league matches seem to have distorted the figures somewhat.

“The release will do little to sway the opinions of economic forecasters. It remains a brave call to signal a turning point in sentiment for the UK. However, there does appear to be a more optimistic consensus forming. The Bank of England upgraded its outlook for the economy last week, energy prices are falling sharply, China is reopening, and interest rate expectations have eased significantly.”

Is it too soon for optimism?

Tommaso Aquilante, associate director of economic research at Dun and Bradstreet, comments, “Growing by 4%, the UK economy has proven more resilient than expected in 2022. And yet there is clear evidence of a weakening in economic activity, which has stagnated in the fourth quarter. The economy has avoided a recession by just a whisker, but it’s likely to be flirting with one in 2023, and consequently, there are challenges ahead for businesses.

“Credit risk has increased significantly, with business liquidations being consistently above pre-pandemic levels for a while. Businesses are going to have to be exceptionally diligent when managing their financial pipeline. To better serve customers and preserve cash flows and ensure businesses are resilient to the challenges ahead, comprehensive monitoring of risks and opportunities along product lines and supply-chain ramifications is essential.”

Douglas Grant, group CEO of Manx Financial Group PLC, said, “Today’s GDP data shows the UK narrowly avoiding a recession. While of course there is much to be positive about today’s figures, we are still facing a bleak picture thanks to another year of expected sluggish growth. Last year brought a stormy and turbulent environment for SMEs and this announcement does little to suggest 2023 will be any better.

“On top of unprecedented market volatility seen in the last quarter, the GDP figure will compound the worst effects of rising inflation, the energy crisis businesses faced this winter as well as the Bank of England’s interest rates rises. We believe that demand for liquidity support in the UK is going to soar to levels not seen since the onset of Covid lockdowns as firms desperately seek vital capital.

“While many SMEs prepared for no GDP growth by listening to lenders and locking in their debt into fixed rate structures, it is now too late for other businesses which were not so forward thinking. Hence, more should be done at the governmental level to help SMEs, the backbone of the UK economy, weather these stormy conditions.

“Our research recently revealed that 22% of UK SMEs that needed external finance and/or capital over the last two years were unable to access it. Indeed, more than a quarter have had to stop or pause an area of their business because of a lack of finance. SMEs continue to struggle with accessing finance and that worryingly, this lack of availability is costing them and the UK economy growth opportunities at a time when it is needed the most.”