Our Opinion: 2023
Growth boost for Britain
The World Cup delivered an unexpected boost for the UK economy, raising hopes that Britain may narrowly avoid sliding into recession.
After months of gloomy data, GDP figures on Friday revealed that the economy grew by 0.1% in November, beating analysts’ prediction of 0.3% slump. It was a welcome piece of good news for Briton’s badly affected by the cost-of-living crisis.
With inflation forecast to fall in the coming months, and the pressure on energy bills set to ease thanks to warmer than expected winter weather and a drop in the price of gas, the economic outlook now appears slightly brighter.
The figures from the Office for National Statistics (ONS) came after the hospitality sector, which has been badly hit by Covid lockdowns and strikes, saw a welcome lift during the Qatar World Cup as fans flocked to pubs and bars. They reported sales up 30 to 40% on match days, once again underlining the importance of hospitality in driving UK economic growth and recovery.
Tesco and Marks and Spencer also reported impressive Christmas trading figures last week, suggesting that Britain’s economy may be showing greater resilience than predicted.
A recession is defined as two quarters or more in a row of falling output, with GDP falling by 0.3% between July and September. Economists widely expected a similar fall in the final quarter of 2022 – despite a 0.5% rise in October. As well as The World Cup, growth in November was also driven by increases in telecommunications and computer programming as well as a pickup in business for employment agencies.
The Bank of England had predicted the UK will officially enter recession when figures for GDP in December are released next month, and then remain in recession throughout the year.
In more good news, UK inflation continued to fall at the end of last year, although remaining close to a 40-year high. The Consumer Prices Index, the headline measure of inflation, fell to 10.5% in December, down from 10.7% per cent in November. Inflation is thought to have peaked at 11.1% in October when households received their winter energy bills.
Whilst the economy did better than expected in the last quarter of 2022, it is still too soon to conclude the economy will be able to get through this period of high interest rates and high inflation largely unscathed.
Nevertheless, investor optimism that the UK economy may not be as weak as feared has propelled the FTSE 100 index of Britain’s biggest companies to close to its record high. The new year may only be three weeks old, but the FTSE 100 is already up by just under 5.5%. Compare this to the 0.9% increase over the whole of 2022. The mid-cap FTSE 250, which has a greater focus on the domestic economy than the FTSE 100, is back to where it was last August, having climbed by 5.8% since the start of the year.
Psychologically, this is all a welcome boost to the UK’s prospects. And we haven’t had much of that recently.
18th January 2023
