UK Economy Returns to Growth, Easing Fears of Impending Recession

A Union Flag flies from HMS Belfast moored on the River Thames in the shadow of the office buildings of the City of London, in London, on Nov. 1, 2020. Justin Tallis/AFP via Getty Images

The UK economy returned to growth in January following a contraction the month before, easing fears of an impending recession.

According to the latest data from the Office of National Statistics (ONS), monthly real GDP is estimated to have grown by 0.3 percent in January, after falling by 0.5 percent in December 2022.

Economists say January’s GDP growth is not surprising as December’s GDP figures were affected by several days of rail and postal strikes and also declining output in the entertainment sector as a result of the football Premier League taking a break for the World Cup.

Chancellor of the Exchequer Jeremy Hunt (R), with Energy Secretary Grant Shapps, speaking at a meeting of senior leaders from across UK green industries at Queen Elizabeth Olympic Park, east London, on Feb. 21, 2023. Stefan Rousseau/PA Media

The services sector grew by 0.5 percent in January after falling by 0.8 percent in December 2022, largely driven by education, transport, and entertainment.

But looking at the broader picture, GDP was flat in the three months to January 2023.

ONS Director of Economic Statistics Darren Morgan said: “The economy partially bounced back from the large fall seen in December. Across the last three months as a whole and, indeed over the last 12 months, the economy has, though, showed zero growth.

“The main drivers of January’s growth were the return of children to classrooms, following unusually high absences in the run-up to Christmas, the Premier League clubs returned to a full schedule after the end of the World Cup, and private health providers also had a strong month.

“Postal services also partially recovered from the effects of December’s strikes.”

‘On Weaker Ground Than It Appears’

Despite the overall rise, the new figures also showed a fall in output in both the manufacturing and construction sectors.

Production output fell by 0.3 percent in January 2023, following growth of 0.3 percent in December 2022.

The construction sector fell by 1.7 percent in January after being flat in December.

“Looking beneath the surface, the figures suggest the economy is on weaker ground than it appears,” Ruth Gregory, deputy chief UK economist at Capital Economics, was quoted by the BBC as saying.

She added that strike action in February may have hit growth and the impact of successive interest rate rises is yet to be felt by parts of the economy.

“So we doubt January’s strength will last and our hunch is that there will still be a recession,” she said.

‘More Resilient Than Many Expected’

Chancellor Jeremy Hunt, who is due to deliver his spring budget on March 15, welcomed the new GDP figures.

He said: “In the face of severe global challenges, the UK economy has proved more resilient than many expected, but there is a long way to go.

“Next week, I will set out the next stage of our plan to halve inflation, reduce debt, and grow the economy—so we can improve living standards for everyone.”

But the main opposition Labour Party accused the Conservative government of having failed to grow the economy.

Labour’s shadow chancellor Rachel Reeves said the GDP figures show the economy is “inching along this Tory path of managed decline.”

She added: “People will be asking themselves whether they feel better off under the Tories, and the answer will be no.

“What we need now is the ambition to grow our economy so every part of Britain feels better off, which is what Labour’s mission to secure the highest sustained growth in the G-7 will do.”

Talking to Times Radio, Foreign Secretary James Cleverly blamed the low GDP growth on international factors such as the Russian invasion of Ukraine.

He said: “I remember it wasn’t that long ago we were predicted in a heavy recession. Of course we’d like to see greater growth figures than that but there are huge international economic headwinds.

“The Russians’ illegal and unprovoked invasion of Ukraine has pushed up fuel prices, pushed up food prices, these are all having a dragging effect on the UK economy.”

‘Not Out of the Woods Yet’

Tina McKenzie, policy chair at the Federation of Small Businesses, said, “While January’s figures are a glimmer of hope, the flat growth over the previous three months means we’re not out of the woods yet, with tough trading conditions persisting for many small firms.”

Ben Jones, lead economist at the Confederation of British Industry, said: “The slight rebound in growth at the start of the year wasn’t altogether surprising, given the sharp drop in December. But activity is likely to be subdued in the near-term, given the headwinds of high inflation, still-high energy prices, and rising interest rates. However, sentiment is improving, and business leaders are hopeful of a more stable operating environment later this year.”

He urged the government to use the forthcoming budget to “overcome the prevailing economic headwinds by tackling the barriers holding firms back,” such as labour shortages and the planned increase in corporation tax.

PA Media contributed to this report.