LONDON — The U.K. economy expanded by 0.3% in January, official figures revealed on Friday, exceeding expectations as it fends off what economists see as an inevitable slump.
Economists surveyed by Reuters had projected a 0.1% monthly increase in GDP. The Office for National Statistics said GDP was flat over the three months to the back of January.
“The assistance sector grew by 0.5% in January 2023, after dropping by 0.8% in December 2022, with the biggest donations to growth in January 2023 arriving from education, transport and storage, human health sports, and arts, recreation, and recreation activities, all of which have recovered after falls in December 2022,” the ONS saw.
Production work fell by 0.3% in January after rising 0.3% in December, while the building sector declined 1.7% in January after flatlining the last month.
The U.K. economy offered no growth in the final quarter of 2022 to narrowly dodge a recession — commonly defined as two-quarters of negative growth — but shrunk by 0.5% in December.
The U.K. is the only country in the G-7 (Group of Seven) significant economies that have yet to recover their lost work during the Covid-19 pandemic fully. The ONS said Friday that monthly GDP stands now calculated to be 0.2% below its pre-pandemic levels.
The Bank of England and the Office for Budget Responsibility have shown a five-quarter recession beginning in the first quarter of 2023. Still, the data has so far surpassed anticipations.
Despite the better-than-expected January print, economists always broadly think the activity is on a downward trajectory, as high inflation consumes household incomes and business activity.
U.K. inflation was restricted to an annual 10.1% in January, resuming to shrink after striking a 41-year high of 11.1% in October but remaining well outside the Bank of England’s 2% target.
Suren Thiru, economics manager at the Institute of Chartered Accountants in England and Wales, said the “mediocre” January rebound suggests the economy is still on a “downbeat path.”
“We’re likely to resume flirting with recession throughout much of 2023, as high inflation, tax rises, and the lagged effect of rising curiosity rates shrinks customer spending power, despite a boost from easing energy costs,” Thiru said.
Finance Minister Jeremy Hunt will provide the government’s funding on Wednesday and is anticipated to announce further measures to address the country’s cost of living crisis.
“The Spring Budget could significantly impact the U.K.’s near-term growth prospects. While growing energy support will relieve working households, bold tax rises would risk destroying any lingering momentum from the economy,” Thiru said.
Tom Hopkins, portfolio director at BRI Wealth Management, noted that monthly figures are challenging to read, given contortions over the final six months — such as the funeral of Queen Elizabeth II and the World Cup — which somewhat affected customer services.
“The underlying movement in the thrift seems to be one of the gradual squeezes, thanks in part to a constant downtrend in retail spending,” he said. “We’re hoping a technical recession in the U.K. in the first half of this year, albeit not as bad as first feared.”
“In the face of severe international challenges, the U.K. economy has established more resilient than many owed, but there is a long way to go,” said Chancellor Jeremy Hunt.
“Next week, I will put out the next scene of our plan to halve inflation, lower debt, and grow the thrift — so we can improve living means for everyone,” he said about his budget speech due on Wednesday.
Meanwhile, Labour’s shadow chancellor Rachel Reeves said: “Today’s results show our thrift is still inching along this Tory path of managed decline.”
“People will ask themselves whether they handle better off under the Tories, and the response will be no.
“But this is not a new trend. Thirteen years of Tory failure and wasted opportunities have left growth on the floor, weakening our economy.”
Business managers gave the slight rebound in the economy in January a cautious welcome.
“The slight rebound in elaboration at the beginning of the year wasn’t entirely surprising, given the sharp reduction in December, said Ben Jones, lead economist at the Confederation of British Industry.
“But activity will likely be stopped soon, given the headwinds of increased inflation, still-high energy prices, and rising interest rates.
“However, sentiment is improving, and business leaders hope for a more stable operating environment later this year.”
Kitty Ussher, a chief economist at the Institute of Directors, said, “while a flat economizing overall is not usually festival grounds, the fact that these effects are more favorable than was anticipated at the time of the Chancellor’s autumn opinion in November gives him more room for maneuver in next week’s budget.”
“The focus now is to use that flexibility to help put Britain on a sustainable development path for the holiday of the year and beyond,” she said.