The chancellor has warned that “we are not out of the woods” despite new figures showing that the UK narrowly avoided falling into recession in 2022.
The economy flatlined in the final three months of last year, following a drop of 0.3% between July and September, meaning the UK is not technically in recession – which is defined as two consecutive quarters of economic decline.
“The fact the UK was the fastest growing economy in the G7 last year, as well as avoiding a recession, shows our economy is more resilient than many feared,” said Jeremy Hunt.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
However, economists and commentators warned that the outlook remains bleak and that even if the UK has not entered a recession yet, for many it will still feel as if it has.
What did the papers say?
Britain has avoided a recession “in the least glamorous way possible”, wrote Kate Andrews for The Spectator, because “it is not a story of growth, but a story of stagnation, that has kept the dreaded label of ‘recession’ at bay”.
There is “no guarantee that people feel better off”, she added, because “with real wages taking such a hit, many will feel as though we’re in recession anyway”.
“Whether we’re ‘technically’ in a recession isn’t actually so important,” said Politico’s London Playbook, because “when such small changes are involved, a plus sign is not a conveyor belt of milk and honey, any more than a minus sign is Armageddon”.
The National Institute of Economic and Social Research told the newsletter that “this year will feel like a recession for many, regardless of the data”. It added that “a focus on the economic crisis faced by most of the British population, rather than technicalities, offers a more insightful perspective”.
Political economist Richard Murphy agreed. “Who cares if we are not in a technical recession if millions of people cannot make ends meet, heat their homes, pay the rent or mortgage and feed their children?” he asked on Twitter.
Reuters put the data in a global context, noting that the UK’s output in the fourth quarter was still 0.8% below its pre-pandemic level, “in sharp contrast to other major advanced economies which are now above their pre-pandemic size”.
Despite the good news of a recession averted, City AM noted that the markets were un-buoyed: the FTSE100 index was trading slightly lower, down 0.24% this morning.
The Bank of England is still expecting a recession to occur sometime in 2023 but believes that the period of negative economic growth will be shallow and shorter than previously predicted.
Most analysts agree. Paul Dales, chief UK economist at Capital Economics, told the Evening Standard: “Given that the drags from high inflation and high interest rates are very large, we still think the economy will enter a recession this year.”
And Jeremy Batstone-Carr, from Raymond James Investment Services, told the Daily Express that “we are still in for the downturn which so far has been barely kept at bay”.
Although “there is greater hope that a downturn may never materialise at all or could be shallower or much more short-lived than initially feared”, Alice Haine, personal finance analyst at Bestinvest, told The Sun, the economy is “not out of the woods yet”.
A “milder recession” would mean that “unemployment rises more slowly, wage growth stays strong and domestically generated inflation falls at a slower pace than expected”, Thomas Pugh, an economist at RSM UK, told This Is Money.
However, he added, this could in turn be bad news for homeowners as it “could result in the Bank of England raising rates by more than expected”.
Rather than the economy going into recession, it may just remain flat, argued one pundit. Instead of “doing the timewarp and bracing for a recessionary return to the seventies, sparked by energy shocks, soaring inflation and industrial strife”, Susannah Streeter, head of money and markets at Hargreaves Lansdown, told the Daily Mail, “we could be heading for an early noughties-style period of stagnation”.
Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.