UK Economy Has Flatlined. What Does That Mean For You?

The UK just managed to avoid falling into recession towards the end of last year.

After shrinking for one quarter, it (ever so slightly) jumped back between October and December by just…not growing at all.

Chancellor Jeremy Hunt said this was a sign “our economy is more resilient than many feared” – but warned that we’re still not “out of the woods yet”.

It’s also worth noting that Friday’s data – which has helped experts decide if we’re in recession – is only the first estimate. These numbers are often revised later.

But what does all this mean?

Data from the Office for National Statistics (ONS) said the economy recorded zero growth between October and December.

According to the ONS’s director of economic statistics Darren Morgan, it comes down to a few different factors – including strikes.

“Public services were hit by fewer operations and GP visits, partly due to the impact of strikes, as well as notably lower school attendance,” he said.

“The break in Premier League football for the World Cup and postal strikes also caused a slowdown.

“However, these falls were partially offset by a strong month for lawyers, growth in car sales and the cold snap increasing energy generation.”

Across the whole of 2022, the economy did grow by 4%, despite the cost of living crisis squeezing household incomes.

A recession is defined as two consecutive quarters (so six months in total) where the economy shrinks. This is also known as a decrease in the value of goods and services we produce, Gross Domestic Product, or GDP.

If GDP declines in value people’s income tend to fall.

In the third quarter of 2022, July to September, the economy did shrink by 0.2%. But because it didn’t shrink again the next quarter, we’ve just missed out on meeting the criteria for a recession.

The last recession was in 2020 at the height on the pandemic, but it only lasted for six months, although it did see a 20.4% reduction in the UK economy between April and June in 2020 though – the largest on record.

Before that, the 2008 global financial crash went on for five quarters.

Even if we don’t meet the technical definition for being in a recession right now, experts believe that it will very much feel like the country is in a period of negative growth already.

After all, the UK is still the only G7 country which now has a smaller economy than it did prior to the pandemic.

And experts at the International Monetary Fund (IMF) still expect the UK to be the only G7 country to fall into recession this year, and set to perform even worse than Russia.

And 2023 is still set to feel like a recession for many, according to an economist at National Institute of Economic and Social Research (NEISR).

“A focus on the economic crisis faced by most of the British population, rather than technicalities, offers a more insightful perspective,” NEISR’s Paula Bejarano Carbo told POLITICO.

One in four UK households (potentially seven million families) will not be able to fully pay off their food and energy bills in 2023 – that’s an increase from one in five last year, according to NEISR.