UK economy marginally expanded in final quarter of 2022, says ONS

The UK economy was more resilient than previously estimated in the final three months of 2022, according to revised data, with the government easing the impact of higher energy costs on households even as business investment fell.

The Office for National Statistics said on Friday that gross domestic product rose by 0.1 per cent between the third and fourth quarters of last year, rather than remaining unchanged, as indicated in its preliminary estimates.

The uptick followed a 0.1 per cent contraction in the three months to September 2022, which the ONS first estimated as a 0.2 per cent drop.

Nevertheless, the UK remains the only G7 economy that has not returned to its pre-coronavirus pandemic size, contrasting with an expansion in the US and the eurozone. In the final three months of 2022, UK output was 0.6 per cent below its level in the same period in 2019, according to the ONS. 

Philip Shaw, economist at Investec, said Friday’s data took “the UK a little further away from the recessionary danger zone”. But he added that it did “not change the overall picture that the economy’s performance was lacklustre over the second half of last year as the cost of living crisis hit hard”.

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The ONS’s revised figures showed a drop of 0.2 per cent in business investment in the final quarter of 2022, which remained 2.2 per cent below its pre-pandemic levels and has stagnated since the Brexit vote in 2016.

The fall from initial estimates of a 4.8 per cent rise came despite the government’s “super-deduction” scheme, which offered companies 130 per cent tax relief on purchases of equipment between April 2021 and March this year.

Households proved to be more resilient, with their real disposable income rising by 1.3 per cent in the final quarter of 2022 after 12 months of decline. The ONS said the expansion in the amount of money people retained after direct taxes was driven largely by the £5.7bn paid out under the government’s energy bills support scheme.

The increase helped households put more money away, with the average percentage of disposable income saved rising from 8.9 per cent in the third quarter of 2022 to 9.3 per cent in the final quarter.

Household spending was up to 0.2 per cent, with the increase driven by higher transport and housing costs as well as tourism.

The UK’s current account deficit, a measure of the extent to which the UK is reliant on inflows of foreign money, also narrowed to £21.1bn, or 3.3 per cent of GDP, in the final quarter of 2022, from 4.2 per cent in the previous three months. 

However, some economists warned that the economy would remain under pressure amid still elevated price rises, and as rising borrowing costs were felt by businesses and households.

Thomas Pugh, economist at RSM UK, said “the squeeze on household real incomes will intensify over the next six months, as rising interest rates combine with high inflation”.