Is recession inevitable following surprise economic growth?

Dafferns Wealth

The word “recession” hasn’t been far from the headlines for quite a while now, as the economy struggles to bounce back from the pandemic and soaring inflation hits consumer confidence. But the latest figures have raised some eyebrows.

According to the latest official data, the UK economy shrank by 0.3 per cent in the three months to November 2022 – so far, so predictable.

But the economy also saw unexpected growth of 0.1 per cent in November itself, bucking many expectations. For example, a poll of economists by Reuters found they were expecting a 0.2 per cent contraction throughout the month.

So what’s happening?
It’s clear that the economy was given a boost in November by the World Cup in Qatar, with many people going to pubs and bars to watch football matches.

However, many of the problems that have been putting the brakes on economic growth still remain, so it’s possible that recession might simply have been delayed rather than avoided.

Indeed, the Bank of England and the Office for Budget Responsibility both expect the economy to shrink in the first half of 2023. And while the government has made halving inflation one of its main priorities for the year, households are still squeezed at the moment and struggling with soaring food and energy prices, rising debts and higher interest rates.

This leads us to another possible interpretation of the surprise growth in November. With households under so much financial pressure, did people bring forward or spread out their Christmas spending to ease the burden in December? We await December’s retail figures with bated breath.

What do the experts say?
Commenting on the latest figures, the Resolution Foundation says the surprise economic growth in November means that the UK is unlikely to have fallen into recession during 2022. However, it said this will be “cold comfort” for many struggling families.

James Smith, Research Director at the think tank, commented: “While GDP may not have been shrinking, household incomes certainly were – and are – as families experience a deep living standards downturn.”

The organisation believes typical household disposable incomes are on track to fall by seven per cent during 2023 and 2024, which works out to more than £2,000 per household and is bigger than the five per cent squeeze that came after the 2008 financial crisis.

Many economists, meanwhile, are cautious about what this latest set of figures indicate, suggesting that a recession is still around the corner.

For example, Craig Erlam, senior market analyst for the UK and EMEA at trading firm OANDA, said he is “not convinced” the figures are “an indication of some resilience in the economy”.

“Those numbers don’t change the reality of the cost of living crisis,” he commented. “If accurate, it more likely reflects shifted spending patterns as opposed to a more willing consumer.”

During a tough economic climate, it’s more important than ever to make your money work as hard as possible for you. So if you have any questions or need guidance and support on managing your finances in this environment, please get in touch.

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