• Swindon & Wiltshire News
• Friday February 10 2023
• Author Name: Peter Davison

Business groups respond with relief that UK avoided recession

The UK narrowly avoided falling into recession in 2022, according to GDP figures published today (Friday).

The Office for National Statistics said recession had been avoided despite a 0.5 per cent fall in economic output during December, due partly to strike action.

Growth for the fourth quarter, October to December 2022, was 0 per cent, following a -0.2 per cent dip in Q3 and a modest 0.1 per cent increase in Q2.

A recession is typically defined as when the economy shrinks for two consecutive three-month periods.

The Bank of England still expects the UK to enter recession this year, but says it will be shorter and less severe than forecast.

Reacting, David Bharier, head of research at the British Chambers of Commerce, said: “Today’s GDP estimates, while indicating the economy technically avoided a recession, show some worrying developments.

“Production output fell by 0.2 per cent in Q4 2022, eight of the 14 service sectors saw contractions, and monthly GDP fell by 0.5 per cent in December.

“Small businesses have seen three years of economic shocks, including lockdowns, global supply chain crises, Brexit, and soaring energy costs.

“Our research has shown that most small firms have seen no improvements to sales, exports, or investment. Retailers and hospitality firms are among the worst affected by this current anaemic economy.

“There is some relief ahead in falling energy prices and with the potential peak in inflation. But firms face other headwinds, including continuing strike action and further uncertainty around our trading relationship with Europe.

“Businesses will need to see a long-term plan for growth and concrete action in the upcoming Budget, including plans on infrastructure, tax, skills, and trade.”

At the Federation of Small Businesses, policy chair Tina McKenzie said flat GDP was “cold comfort for small businesses amid energy fears.”

“Our headline Small Business Index confidence tracker fell deeper into negative territory in the last quarter of 2022, at -46 points – far lower than it was during the Omicron lockdown, and only just an improvement from the depth plumbed during the second national lockdown in the final quarter of 2020,” she said.

“That’s why we’re greeting today’s news with a strong dose of caution.”

“Inflation is still a concern, and its effects will linger in the economy even once it falls back into a range we are more used to seeing. Interest rates remain high in the fight to curb inflation, with small businesses caught between elevated prices and greater debt costs.

“On the plus side, financial markets are performing well, and the reopening of China’s economy will help improve general global economic conditions.”

Ben Jones, lead economist at the CBI, said: “We may have avoided a technical recession late last year, but we probably won’t avoid one this year.

“While we expect that the downturn will be shallow, if we act now, we can make the recession even shorter than predicted.

“All eyes are on the Chancellor’s March budget, when businesses will be looking for a bolder approach to tackling labour and skills shortages and falling business investment.

“In particular, firms will be looking for a permanent replacement to the super-deduction, as well as a focus on innovation and the green economy, to help boost economic growth in the years ahead.”

And locally, Phil Smith, managing director of Business West, said: “We welcome the news that the UK has avoided a recession with flat GDP for Q4 compared to Q3, even though the first estimate indicates the economy contracted in December.

“Businesses in our region will be hoping that 2023 witnesses a downturn as shallow and short duration as possible, given inflation looks to have peaked already.

“Energy costs, whilst expected to remain structurally higher than businesses are used to should at least not continue to climb further given wholesale energy costs have been coming down since Autumn 2022.

“In our Q4 2022 Quarterly Economic survey, only six per cent of nearly 400 businesses told us that they felt confident in the nation’s economic prospects over the coming year. This underlines the need for realism when reading these early economic estimates.

“Businesses, especially those which are smaller, have faced huge challenges in the past few years with soaring inflation and rising energy costs, damaging their resilience going into 2023.”