How The UK Economy Narrowly Avoided Recession…For Now!

What is the technical definition of a “recession”?

To be in a technical recession, an economy has to shrink for two consecutive quarters, as demonstrated by the Government’s GDP (Gross Domestic Product) measurement.

The UK economy had actually shrunk in the previous quarter (July - September 2022), and if that had been repeated, we would have officially been in recession.

Why did we see zero growth in the last quarter of 2022?

The Bank of England Monetary Policy Report, published last month, explains it clearly.

We have seen how hard the impact of higher inflation has been on people… Households have less to spend. As a result, the UK economy is not growing.

Factors such as Russia’s invasion of Ukraine, the after-effects of the pandemic, low unemployment, Brexit and the increase in interest rates all have a part to play in our high inflation rate.

Is avoiding recession a positive sign for the UK economy?

Zero growth is better than recession, yes; but only in the way that leaving one sandal on the beach is better than two: you still have one, but it’s not what you’d call a fully functioning pair.

Flatlining certainly doesn’t live up to the ambitions of a “high-growth economy”. This poor economic performance is off-putting to investors. If the UK doesn't start to see an upturn soon (and even a slow one would do), recession remains a very real risk. To pull away from the threat, we really need to see a period of growth, however slight.

Could there still be a UK recession in 2023?

With the Chancellor of the Exchequer, Jeremy Hunt, himself saying we’re “not out of the woods”, we could still see a recession in 2023.

The National Institute of Economic and Social Research (Niesr) forecasts GDP growth of -0.2 per cent in the first quarter of 2023. However, the UK would need a second poor quarter to qualify as a recession, and several economists believe this won’t happen.

The Bank of England predicts that inflation will continue to fall and we’ll see a slow growth for 2023 as a whole. The International Monetary Forum is more optimistic about the following year, which doesn’t bode well in the short-term.

What is the impact of zero growth on UK businesses and households?

While the country isn’t in recession, it still feels like it is for many SMEs and households. The current cost-of-living crisis and high energy bills mean that inflation is at an all-time high, and Niesr predicts that around seven million families won’t earn enough to cover their bills in 2023. To many individuals and small businesses, the fact that we’re not in recession is simply splitting hairs.

It’s a challenging time for many small and medium-sized enterprises at the moment, but help is at hand to better manage your finances. DL Accounts can help see your business through whatever comes next.


Further Suggested Reading: 5 of the Worst Recessions in UK History.