The latest figures for economic growth will all but confirm next week that the UK is in recession, economists warn.
Official data from the Office for National Statistics is expected to show on Friday that the economy fell back into the red in November as households and businesses faced sustained pressure from higher interest rates and the rising cost of living despite a brief lift in gross domestic product (GDP), the main measure of output, in October.
The 0.5 per cent rise in GDP came after contractions of 0.1 per cent in August and 0.6 per cent in September, when an extra bank holiday for the Queen’s funeral suppressed growth. Figures in February are expected to show that the economy had formally entered a recession, defined as two consecutive quarters of negative growth, by December last year.
In November the Bank of England increased interest rates by its biggest margin since 1989 to 3 per cent in an attempt to tackle inflation, which is close to a 40-year high and more than five times the bank’s 2 per cent target, at 10.7 per cent that same month.
More timely indicators have painted a gloomy picture for December, with a fall in the CBI’s monthly growth indicator to a level consistent with a 0.7 per cent quarter-on-quarter decline in GDP. Meanwhile, the services sector remained in contraction for a third consecutive month at the end of last year, despite a boost from festive spending, according to the latest purchasing managers’ index (PMI) issued by CIPS and S&P Global.
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Economists at Pantheon Macroeconomics expect GDP to have fallen by 0.3 per cent year-on-year in the final quarter of 2022 following a fall of 0.3 per cent in the third quarter. “The PMI is likely understating the decline in activity as it does not include the retail sector, where sales are trending down, nor the health sector, which likely saw output drop in both November and December as the roll-out of Covid boosters petered out,” they said.
Sandra Horsfield, an economist at Investec, said that interest rates and strike disruption have offset government support with the cost of living.
The UK “may have slipped into a technical recession” in the final three months of last year and “a deeper and more prolonged downturn may follow”, she said.
