UK narrowly avoids recession with flat GDP in Q4: ONS

Monthly GDP is estimated to have fallen by 0.5% in December 2022, leaving GDP flat in the last quarter of 2022, according to the latest ONS data.

Annual GDP output is estimated to have grown by 4.1% in 2022, following growth of 7.4% in 2021.

The services sector fell by 0.8% in December; the largest contributions to this fall came from human health activities, education, arts, entertainment and recreation activities, and transport and storage.

Output in consumer-facing services fell by 1.2% and the construction sector was flat after a fall of 0.5% (revised down from being flat) in November.

Richard Carter, head of fixed interest research at Quilter Cheviot, said: “This morning’s GDP statistics show the UK has narrowly avoided the forecasted recession.

“While the numbers may appear positive for now, overall the economy is flatlining and it is difficult to see that changing in the short-term. As such, we are still likely to be in a recession at some point during 2023 – which is still expected to be long and shallow - so these figures do not provide a huge amount of comfort.

“The Bank of England may well feel vindicated that the economy is so far surviving interest rates, but the toll on households has still been huge due to rising energy bills and high inflation, while the retail and hospitality sectors have had to deal with significant strike action.

“These issues are yet to go away, and in reality are likely to hang around for some time yet. As such, it is no surprise to see the IMF predict the UK to be the weakest developed economy in 2023.

“With the spring budget fast approaching, there is significant pressure on the shoulders of Rishi Sunak and Jeremy Hunt to find ways to stimulate growth.”

Debapratim De, senior economist at Deloitte, commented: “The UK avoided a recession last year but by the slimmest of margins. Going by recent data revisions, today's figures could well be revised downwards in a few months, painting a very different picture for growth.

“Recession or not, UK growth has stagnated for some time now. Despite the marginal improvement in sentiment over the last few weeks, we continue to forecast a contraction in GDP this year.”

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, added: "Today’s figures confirm that the UK has escaped recession by the skin of its teeth in 2022. With December’s contraction of 0.5%, skirting recession by the slimmest of margins, the UK has achieved a minor economic victory.

"November’s 0.1% growth came as a significant surprise, with England’s footballers providing sufficient cheer to temporarily offset the negative effects of elevated inflation and rising rates. But the footballers have now packed up and come back home, bringing an end to this economic reprieve.

"We are still in for the downturn which so far has been barely kept at bay. It will be shorter and shallower than previously thought, as per the Bank of England’s forecasts. The lagged impact of earlier base rate increases combined with additional policy tightening will ensure it happens. However, whether we are officially in recession will not make much difference to most people – it will simply feel like a continuation of the present sluggishness and cost-of-living woes."