Hope of some better news after the bad?

BRITAIN narrowly avoided falling into recession towards the end of 2022, new data from the Office for National Statistics is expected to show on Friday.

Economists believe the ONS will say that UK gross domestic product (GDP) shrank by 0.3 per cent in December, cancelling out growth of 0.1 per cent in November and 0.5 per cent in October. That would leave the economy flat for the fourth quarter of last year.

A recession occurs when GDP contracts for two consecutive quarters. The economy contracted by 0.3 per cent in the third quarter last year. Fourth quarter data had been weak.

However, while the economy was spared by November’s unexpected growth, economists warn that 2023 is still likely to be plagued by recession, given the weak environment and higher interest rates working their way through the system. “The recession has been delayed, not postponed,” said Investec chief economist Philip Shaw. “The economy will do well if the recession lasts just two quarters, given the monetary tightening and economic background. It is likely to be a difficult year, but not as bad as the Bank of England had been projecting back in November.”

Martin Beck, chief economic adviser to the EY ITEM Club think tank, said: “The industrial unrest in December did not help, and neither did the cold weather, but we have December down 0.3 per cent, which means the quarter was flat and the bad headlines about recession are delayed.

“That said, things are not as bleak as the Bank of England says, so any recession will be modest, if we have one. And the Bank is becoming less pessimistic. First it was predicting a twoyear recession, now it says that it may be just over a year.”

However, Bank of America UK economist Robertwood said that the Bank’s forecasts were still “grim” despite the better near-term growth outlook.

“It expects the UK to be able to grow only 0.7 per cent a year in 2024 and 2025 without setting off inflation again,” he said.

On Thursday the Bank of England raised its base rate by a half point to 4 per cent, its highest level since October 2008, to combat inflation.

Although the market believes rate hiking has peaked, Capital Economics economist Ashley Webb warned the base rate could still rise to 4.5 per cent: “Our hunch is the persistence in domestic inflationary pressures generated from the tight labour market will be a bit stronger than the Bank expects over the next three months.”