UK economy shows zero growth in the final three months of 2022

Britain’s economy showed zero growth in the final three months of 2022 - enough for it to avoid entering a recession for now - but faces tough prospects in 2023 as households continue to wrestle with double-digit inflation.

Monthly gross domestic product (GDP) data for December - a month marked by widespread rail strikes and bad weather - showed a 0.5 per cent contraction, the Office for National Statistics said, larger than the 0.3 per cent forecast.

“The economy contracted sharply in December meaning, overall, there was no growth in the economy over the last three months of 2022,” said ONS statistician Darren Morgan said.

Output fell 0.2 per cent in the three months to the end of September - when many businesses shut briefly to mark Queen Elizabeth’s funeral - and a second consecutive quarter of falling output would have met Europe’s usual definition of recession.

However, the respite is only likely to be temporary.

The Bank of England forecast last week that Britain would enter a shallow but lengthy recession, starting in the first quarter of this year and lasting five quarters.

British living standards have been hammered by a surge in inflation, which hit a 41-year high of 11.1 per cent in October, and firms and households will also feel an increasing impact from the BoE’s rapid increase in interest rates since December 2021.

Output in the fourth quarter was still 0.8 per cent below its pre-pandemic level, in sharp contrast to other major advanced economies which are now above their pre-pandemic size.

ING economist James Smith said he expected Britain’s economy to contract by 0.3-0.4 per cent in the first quarter of this year, and by a smaller amount in the second quarter.

“Recession, or at least a technical one, remains the base case. But this looks like it is going to be very mild by historical standards, helped of course by the collapse in wholesale gas prices,” he said.

Across 2022 as a whole, Britain’s economy grew by 4.0 per cent after 7.6 per cent growth in 2021, as it recovered from a historic blow from the COVID-19 pandemic.

Finance minister Jeremy Hunt said the data showed the British economy was more resilient than expected, but still not clear of danger.

“There is underlying resilience in the UK economy, but we are not out of the woods - inflation is still much too high.

That is causing pain for families up and down the country,” he said.

Meanwhile Britain’s FTSE 100 index rose for the third straight session on Thursday after breaching its record-high level again, buoyed by a slate of upbeat earnings and merger talks tied to Standard Chartered.

The blue-chip FTSE 100 ended 0.3 per cent higher after hitting a record high of 7,949.57 in intraday trading, the third time it has hit a new peak in less than a week.

Standard Chartered jumped 11.4 per cent to record its best day in more than nine months after Bloomberg News reported that First Abu Dhabi Bank is pressing ahead with an all-cash bid of $30 billion-$35 billion for the Asia-focussed bank.

AstraZeneca rose 4.1 per cent, logging its biggest single-day percentage gain in nearly a year, after the drugmaker forecast earnings growth in 2023.

“The broad environment is a really positive one for the UK equity market,” said James Klempster, deputy head of multi-asset at Liontrust.

“The last couple of years have had an environment that suits the kind of sector composition that the UK has, so it’s not a surprise to see UK generally faring well.”

Meanwhile, Bank of England policymakers disagreed about where interest rates need to go to tame inflation, with Governor Andrew Bailey stressing the uncertainty of the outlook, a week after the BoE suggested its run of rate hikes might be peaking.

Investors will keep a close eye on the UK gross domestic product (GDP) data due to be published on Friday, a key metric in gauging the state of the economy.

Weighing the FTSE 100 down were losses in Entain, which tumbled 14.0 per cent after MGM’s chief executive officer said on Wednesday that the company had “moved on” from the gambling firm amid speculation of a takeover.

Watches of Switzerland Group slumped 11.0 per cet after it gave its quarterly trading update, taking the domestically-focussed FTSE 250 index 0.1 per cent lower.