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UK “likely to have avoided a 2022 recession”
The UK is likely to have avoided a 2022 recession thanks to the “surprise economic growth” of 0.1% in November, says the Resolution Foundation.
But they also warn that “the risk of recession still looms large” as the Bank of England and the Office for Budget Responsibility both forecast the economy will shrink in the first half of 2023.
And while growth in November means it’s much less likely we were in recession at the end of 2022, this chart just reminds you that both @bankofengland and @OBR_UK are forecasting the economy to contract through much of 2023 – so we’re still likely to fall into recession. pic.twitter.com/LAgJFR27nr
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Resolution also points out that family incomes are still shrinking, with typical household disposable incomes on track to fall by 7% – equivalent to £2,100 per household – over this financial year and the next one.
James Smith, research director at the Resolution Foundation, explains:
“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.”
Most expected a contraction in November, but growth of 0.1% MoM means an end-2022 recession is much less likely: 3m-on-3m growth (see below) was -0.3% in Nov BUT that includes v. weak Sep figure (-0.8%) and wd take a fall of roughly 0.5% in Dec to leave Q4 as a whole negative. pic.twitter.com/bTSZnxLYHx
— JamesSmithRF (@JamesSmithRF) January 13, 2023
The good news in November is coming from the resilience of the services sector. Within that, particularly surprising is consumer-facing services which had been dropping into September but has since recovered. pic.twitter.com/HlwjDmyk0R
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Worth keeping in mind that growth would have been even stronger were it not for the continued unwinding of test and trace and vaccines which dragged on growth by 0.2ppts in November! pic.twitter.com/Wyc76wuLjQ
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Despite the good news in November, it is worth remember the broader context. Monthly GDP is still 0.3% below its pre-pandemic level (Feb-20). The UK is the only G7 country with GDP below its pre-Covid level. pic.twitter.com/VMeK4to831
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Key events
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We also have new economic data from Germany, showing that Europe’s largest economy probably stalled in the last quarter of 2022.
The German economy likely stagnated in the final quarter of last year and grew by 1.9% over the full-year 2022, the Federal Statistics Office said on Friday.
That suggest Europe’s largest economy may just escape a recession over the winter, despite the economic pain from higher energy prices.
#UPDATE German economic growth slowed to 1.9 percent in 2022, with GDP “stagnating” in the fourth quarter as energy prices surged after Russia’s invasion of Ukraine, the statistics agency said Friday pic.twitter.com/3ngVll6ZZg
— AFP News Agency (@AFP) January 13, 2023
The 1.9% rise in Germany’s GDP in 2022 is slightly above forecasts – a Reuters poll of economists predicted 1.8% growth last year.
The German economy grew 1.9% in 2022, down from 2.6% in 2021, narrowly exceeding the consensus estimate of 1.8% growth. German GDP ‘stagnated’ in Q4. Foreign trade weighed on 2022 growth. pic.twitter.com/ekvCzpsBvv
— Holger Zschaepitz (@Schuldensuehner) January 13, 2023
FTSE 100 highest since May 2018 with record high in sight
In the City, the UK’s FTSE 100 share index has hit its highest level since May 2018.
The blue-chip share index has hit 7847 points, up 0.7% this morning, approaching the alltime intraday record high of 7903 set on 22 May 2018.
Industrial technology firm Rolls-Royce are the top riser, up 2.4%. Banks and mining companies are also in the top risers,
European equities are also rallying, after data yesterday showed that US inflation had cooled last month. US CPI fell to 6.5% in the year to December, down from 7.1% in November, bolstering hopes that the Federal Reserve will slow the pace of interest-rate hikes.
Neil Wilson of Markets.com says markets are beneiftting from China’s relaxation of Covid-19 restrictions, which may spur demand for energy and commodities.
A fresh all-time high for the index in this kind of macro environment probably reflects a bit of defensiveness among global investors, a hunt for yield, relative cheapness and a weaker pound (in dollar terms we are a long way off the all-time high), a belief the Fed is almost done with rate hikes as inflation peaks, and hopes that China’s reopening will drive the commodity and energy sectors.
Investors have also trimmed their forecasts for how high UK interest rates will rise this year. They are now seen peaking below 4.5%, up from 3.5% at present. A lower peak would support economic growth.
So far this year, the FTSE 100 has already gained over 5%. In 2022 it gained almost 1%, while global markets tumbled around 20%.
UK “likely to have avoided a 2022 recession”
The UK is likely to have avoided a 2022 recession thanks to the “surprise economic growth” of 0.1% in November, says the Resolution Foundation.
But they also warn that “the risk of recession still looms large” as the Bank of England and the Office for Budget Responsibility both forecast the economy will shrink in the first half of 2023.
And while growth in November means it’s much less likely we were in recession at the end of 2022, this chart just reminds you that both @bankofengland and @OBR_UK are forecasting the economy to contract through much of 2023 – so we’re still likely to fall into recession. pic.twitter.com/LAgJFR27nr
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Resolution also points out that family incomes are still shrinking, with typical household disposable incomes on track to fall by 7% – equivalent to £2,100 per household – over this financial year and the next one.
James Smith, research director at the Resolution Foundation, explains:
“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.”
Most expected a contraction in November, but growth of 0.1% MoM means an end-2022 recession is much less likely: 3m-on-3m growth (see below) was -0.3% in Nov BUT that includes v. weak Sep figure (-0.8%) and wd take a fall of roughly 0.5% in Dec to leave Q4 as a whole negative. pic.twitter.com/bTSZnxLYHx
— JamesSmithRF (@JamesSmithRF) January 13, 2023
The good news in November is coming from the resilience of the services sector. Within that, particularly surprising is consumer-facing services which had been dropping into September but has since recovered. pic.twitter.com/HlwjDmyk0R
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Worth keeping in mind that growth would have been even stronger were it not for the continued unwinding of test and trace and vaccines which dragged on growth by 0.2ppts in November! pic.twitter.com/Wyc76wuLjQ
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Despite the good news in November, it is worth remember the broader context. Monthly GDP is still 0.3% below its pre-pandemic level (Feb-20). The UK is the only G7 country with GDP below its pre-Covid level. pic.twitter.com/VMeK4to831
— JamesSmithRF (@JamesSmithRF) January 13, 2023
Full story: UK economy grew by only 0.1% in November
Phillip Inman
The UK economy grew by 0.1% in November as consumers headed to the shops in the run-up to Christmas and pubs and bars enjoyed a boost from the World Cup.
It was a slowdown compared with 0.5% growth in October, when the economy rebounded from a weak September, when many businesses closed for the Queen’s funeral. It was, however, better than forecasts, with City economists predicting the economy would shrink by 0.2 % in November.
The onset of a recession in the manufacturing sector limited the strength of the economy and meant that over the three months to November the economy contracted by 0.3%, according to the Office for National Statistics.
The ONS said mining and construction also offset the effect of the decline in manufacturing.
The Bank of England has warned that the UK is probably set for a long recession, as defined by two consecutive quarters of contraction. The economy shrank by 0.3% in the third quarter between July and September, and figures for the October to December period will be published next month, confirming whether or not the economy entered recession at that point.
Thomas Pugh, economist at audit, tax and consulting firm RSM UK, says the UK’s recession has been delayed, not cancelled.
And he points out that a 0.1% rise in GDP doesn’t feel much different than a fall of 0.1%:
‘The surprise 0.1% m/m rise in GDP in November (consensus -0.3% m/m) means there is now a chance that overall growth in Q4 might be positive if GDP falls by less than 0.4% m/m in December. That would mean the official definition of a recession of two consecutive quarters of negative growth might not be met until Q2 of this year.
‘Of course, that doesn’t change much on the ground. For businesses operating in the real economy a rise in GDP of 0.1% doesn’t feel much different to a drop in GDP of 0.1%. But a milder recession would mean that unemployment rises more slowly, wage growth stays strong and domestically generated inflation falls more slowly than expected. This could result in the Bank of England (BoE) raising rates by more than expected.
ICYMI:🇬🇧U.K. Nov. GDP Growth Rises 0.1% M/m; Est. -0.2%
🔻U.K. Nov. Sept.-Nov. GDP Falls By 0.3%; Est. -0.3%
🏭U.K. Nov. Industrial Production Falls 0.2% M/m; Est. -0.2% pic.twitter.com/CZj3qGJ5QU
— Cable FX Macro (@cablefxmacro) January 13, 2023
Labour’s shadow chancellor, Rachel Reeves, is concerned that growth was ‘on the floor’ in the three months to November, with GDP falling by 0.3% during the period.
NEW: GDP fell by 0.3% in the three months to Nov. 2022.
13 years of Tory failure and wasted opportunities have left growth on the floor, our economy weakened and families feeling worse off.
What we need now is a Labour government to stabilise our economy and get it growing.— Rachel Reeves (@RachelReevesMP) January 13, 2023
That contraction was partly caused by the bank holiday in September for Queen Elizabeth’s state funeral. GDP fell by 0.8% in September.
Kitty Ussher, chief economist at the Institute of Directors, thinks the Bank of England could be spurred to raise interest rates again next month by the surprise growth in November.
Ussher says:
“This is stronger activity than was expected for November and so will further contribute to the improvement in market sentiment we have seen in the last few weeks. Given we know the economy also grew in October – albeit driven by a rebound from the period of state mourning – it is no longer certain that the economy will meet the technical definition of a recession when the final data for 2022 is in.
“Today’s better-than-expected data will be encouraging for businesses, but may also cause a cautious Bank of England to continue raising rates unnecessarily when they meet in early February.
The risk now is that rates will rise too far if inflation is already on a downward path due to changes in global energy prices.”
A drop in Covid-19 vaccinations weighed on UK economic growth in November.
The ONS reports that NHS Test and Trace and COVID-19 vaccination programme activity fell by 63% in November 2022, following increases in September and October.
This was driven by a fall in vaccine activity as the autumn booster programme slowed down. It began in early September.
Overall, NHS Test and Trace and the COVID-19 vaccination programme contributed an estimated negative 0.2 percentage points to monthly GDP growth, the ONS explains.
Economist Mohamed El-Erian, chief economic adviser at financial services giant Allianz, tweets there are three key messages from the UK GDP report.
Namely, growth was higher than expected; the services sector is driving it; and the jobs market looks relatively tight:
3 key messages from the just released UK GDP numbers
With a 0.1% expansion, growth surprised on the upside (consensus forecast was -0.2%);
Services continued to power growth (manufacturing contracted);
Judging from certain GDP components, the labor market remains relatively tight— Mohamed A. El-Erian (@elerianm) January 13, 2023
The surprising rise in GDP in November suggests that the economy is proving more resilient than many had feared, says Suren Thiru, economics director at ICAEW (the Institute of Chartered Accountants in England and Wales):
But, Thiru fears November’s growth will only delay the recession, saying:
A strong boost to consumer activity from the World Cup helped lift overall activity.
The positive November outturn delays rather than diminishes the prospect of recession with soaring inflation, higher unemployment, rising interest rates and taxes likely to suffocate activity for much of this year.”
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