City workers in Paternoster Square, where the headquarters of the London Stock Exchange are based, in the City of London, Britain, Thursday, March 2, 2023.
Bloomberg | Bloomberg | Getty Images
LONDON – The British economy expanded 0.3% in January, official figures showed on Friday, beating expectations as it continues to fend off what economists see as an inevitable recession.
Economists polled by Reuters had forecast a 0.1% monthly rise in GDP. GDP was flat over the three months to the end of January, the Office for National Statistics said.
“The services sector grew by 0.5% in January 2023 after falling by 0.8% in December 2022, with the largest contributors to growth in January 2023 coming from education, transport and storage, human health activities and arts, entertainment and recreational activities , all of which have bounced back from declines in December 2022,” the ONS noted.
Manufacturing output fell 0.3% in January after growing 0.3% in December, while the construction sector fell 1.7% in January after being flat in the previous month.
The UK economy showed no growth in the last quarter of 2022 to avoid a recession – commonly defined as two quarters of negative growth – but shrank by 0.5% in December.
The UK remains the only country in the G-7 (Group of Seven) major economies that has yet to fully recover its lost output during the Covid-19 pandemic. The ONS said on Friday that monthly GDP is now estimated to be 0.2% below its pre-pandemic level.
Both the Bank of England and the Office for Budget Responsibility have predicted a five-quarter recession starting in the first quarter of 2023, but the data has so far beaten expectations.
Despite the better-than-expected print in January, economists still generally believe activity is on a downward trajectory as high inflation erodes household incomes and business activity.
UK inflation fell to 10.1% annualized in January, continuing to fall after hitting a 41-year high of 11.1% in October, but remained well above the Bank of England’s 2% target.
Suren Thiru, chief financial officer at the Institute of Chartered Accountants in England and Wales, said the “modest” January recovery suggested the economy was still on a “downward path”.
“We are likely to continue to flirt with recession through most of 2023 as high inflation, tax hikes and the lagged effect of rising interest rates shrink consumer purchasing power, despite a boost from easing energy costs,” Thiru said.
Chancellor of the Exchequer Jeremy Hunt will deliver the government’s budget on Wednesday and is expected to announce further measures to manage the country’s cost of living crisis.
“The Spring Budget could have a significant impact on the UK’s growth prospects in the near term. While extending energy support will provide some relief to struggling households, aggressive tax increases risk eliminating any sustained momentum from the economy,” Thiru said.
Tom Hopkins, portfolio manager at BRI Wealth Management, noted that monthly figures are difficult to read at the moment due to distortions over the past six months – such as the funeral of Queen Elizabeth II and the World Cup – which partly affected consumer services.
“The underlying trend in the economy appears to be a gradual slowdown, thanks in part to a continued downward trend in retail spending,” he said. “We expect a technical recession in the UK in the first half of this year, albeit one that is not as bad as first feared.”
This is a news story and will be updated shortly.