UK Economy may narrowly avoid recession in 2022 as growth beats expectations

• GDP growth of 0.1% in November.
• This follows GDP growth of 0.5% in October.
• World Cup gives a boost to consumer spending.
• A strong services sector has helped the economy avoid an expected decline for November. Services up 0.2%.

Surprise economic growth in November means that the UK is unlikely to have fallen into recession last year. But this will be of cold comfort for many families who are still in the midst of a deep living standards downturn, the Resolution Foundation said today (Friday) in response to the latest ONS GDP data.

Surprising growth of 0.1 per cent growth in November (market expectations were for a fall of 0.3 per cent), coupled with 0.5 per cent growth in October, means that the UK is much less likely to have fallen into recession in 2022. Recent growth was driven primarily by the services sector which is proving resilient in the face of high inflation. The risk of recession still looms large, though, with both the Bank of England and OBR forecasting the economy to shrink in the first half of 2023.

But while the UK is likely to have avoided a 2022 recession, families are still facing a deep living standards downturn. Typical household disposable incomes are on track to fall by 7 per cent – equivalent to £2,100 per household – over this year and next, even bigger than the 5 per cent squeeze that followed the financial crisis.

Sector Response

Chancellor of the Exchequer, Jeremy Hunt, said:

“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.

“To support families through this tough patch, we will provide an average of £3,500 support for every household over this year and next – but the most important help we can give is to stick to the plan to halve inflation this year so we get the economy growing again.”

TUC General Secretary Paul Nowak said:  

“People’s living standards have already plummeted. And now falling GDP is putting jobs and businesses at risk. But there is little sign that Rishi Sunak’s government has any kind of plan to get our economy quickly back to growth.  

“We urgently need workers to have more spending power to help the UK bounce back from decline. But instead, ministers are going all out to hold down pay. That’s only going to make a bad situation worse and keep us in a doom loop.” 

Jonathan Moyes, Head of Investment Research, Wealth Club

 “A modest 0.1% growth in GDP flies in the face of a sustained decline in business confidence surveys through the second half of 2022. Many will be taken by surprise by today’s announcement.

We have seen retailers report stronger than expected earnings reports for Q4 over the past week, and it appears a stronger than expected consumer services and services more broadly have helped the UK economy defy gloomy expectations.

It may be too soon to mark the beginning of a turn in sentiment for the UK, but a quiet consensus appears to be forming. Energy prices are falling sharply, China is reopening and interest rate expectations have eased significantly.”

James Smith, Research Director at the Resolution Foundation, said:

“Surprise economic growth in November – driven by the UK’s dominant services sector – means Britain has likely avoided a rapid return to recession in 2022.

“But while GDP may not have been shrinking, household incomes certainly were – and are – as families experience a deep living standards downturn.”

Additional Information

• The IMF have predicted that a third of the world economy will be in recession this year.
• The OBR said that the support the government is providing will reduce the depth of a recession.
• Monetary policy is the responsibility of the independent Bank of England. The government remains fully committed to the Bank’s independence, and the inflation target of 2%.
• In addition to the Energy Price Guarantee this winter, which is saving the average household £900 on energy bills, the government provided £1200 worth of support to the most vulnerable households for 2022-23: 
• £650 in cost of living payments;
• £400 through the Energy Bill Support Scheme;
• £150 Council Tax rebate;
• Additional support for pensioners and those claiming disability benefits. 
• The government has announced further support on the cost of living in 2023-24, targeted at those most in need: 
• UK households on means-tested benefits will receive a further £900 Cost of Living Payment;
• Pensioner households across the UK will receive an additional £300 Cost of Living payment;
• People across the UK on non-means-tested disability benefits will receive a further £150 Disability Cost of Living payment, to help with the additional costs they face. 
• We have extended the Household Support Fund for another year in England, with £1 billion of extra funding (including Barnett funding for the devolved administrations). 
• The government has introduced changes to the Energy Price Guarantee (EPG), building on the measures already announced which provided much needed support to domestic and non-domestic users. The action taken on Energy support at the Autumn Statement will reduce the fiscal impact of the package whilst saving the average UK household £500 in 2023-24 from a £3000 Energy Price Guarantee.