In normal circumstances the fact that the UK economy eked out a bit of growth in November would be of little relevance, especially since the 0.1% monthly expansion was partly the result of extra spending on food and drink during the World Cup.
Yet for a government sorely in need of some good – or even some less bad – news, the latest bulletin from the Office for National Statistics (ONS) provides some hope that the economy may have avoided falling into recession in late 2022.
The technical definition of a recession is that gross domestic product – a measure of economic activity – declines for two successive quarters. The UK contracted in the third quarter of last year and until the release of Friday’s official data, many economists thought it would decline in the fourth quarter as well. GDP was expected to fall rather than grow slightly in November.
However, after two monthly increases in a row – there was growth of 0.5% in October – it would now take a 0.4% fall in December for the economy to shrink in the fourth quarter of 2022 and so technically be in recession.
That is quite possible. Monthly movements in GDP are notoriously erratic, especially at the turn of the year when they are affected by spending patterns over the Christmas period. December’s cold snap coupled with widespread industrial action could easily have led to a 0.4% fall in output, particularly if rising energy bills and double-digit inflation made consumers more cautious.
Jeremy Hunt’s response to the ONS data suggests the chancellor is not getting carried away by the performance of the economy in November, and wisely so. As the Treasury pointed out, the International Monetary Fund is predicting a third of the world economy will be in recession this year and the UK could clearly be one of the countries affected.
Even if the economy has so far avoided recession – and that remains touch and go – it doesn’t mean it will necessarily continue to do so in the face of rising interest rates and higher taxes over the coming months.
There is also the little matter of the brutal squeeze on living standards caused by wages rising less quickly than prices. The Resolution Foundation thinktank says typical household disposable incomes are on course to drop by 7% – or £2,100 – this year. So even if the economy is not actually in recession, for many people it will still feel like it.
