Is the UK in recession or not? What economic growth in November means for your money

The UK economy appears to have avoided a recession in 2022 as the Office for National Statistics (ONS) reported a “surprising economic growth” of 0.1% in November.

Many economists welcomed the news that the UK economy did not shrink at the end of last year, thanks to strong performance in the telecommunications, computer programming and hospitality sectors.

But it came as a surprise to many who predicted economic growth in November: Reuters A poll of economists had forecast a 0.2 percent fall in GDP this month.

A recession occurs when the economy contracts for two consecutive quarters, which could be avoided if December data show a similar increase after UK output contracted in the third quarter of 2022.

After two consecutive monthly gains (0.5% growth in October), GDP must fall by 0.6% in December for the UK to slide into recession by 2022.

But some commentators have warned that despite better-than-expected results, the UK may not yet be on a “winning circle” as there are still many shortcomings in the wider economic picture.

Are we in a recession or not, and what does this mean for our wages, savings, pensions and mortgages?

Signs that we are in a recession

A recession may still be lurking in the UK. According to AJ Bell financial analyst Danny Hewson, manufacturing activity remains in a “downtrend,” especially as strikes dampen productivity. Figures for December may indicate that this activity is falling even more.

Several business groups have warned that the economy is likely to take a hit in the coming months as higher mortgage rates and the end of government subsidies for utility bills will further weigh on disposable income. This will affect UK companies across the spectrum.

The Resolution Fund said “the risk of a recession remains high,” citing forecasts by the Bank of England and the Fiscal Responsibility Office that show the economy will contract in the first half of 2023.

The think tank notes that household incomes are still shrinking and are expected to fall by 7% this and next fiscal year – a loss of £2,100 per household.

The UK Chamber of Commerce found that while incomes in consumer sectors, including retail, wholesale and hospitality, rose in November, they were still well below pre-pandemic levels.

“These figures once again suggest that economic growth in the UK is heading in the wrong direction, although this period tends to be one of the busiest for the retail sector,” the group said in a statement.

“While GDP grew by 0.1 percent monthly, this is a volatile indicator. A three-month moving average of -0.3% sends a clearer signal about the current course of the economy.”

Pressure from the cost-of-living crisis is also likely to intensify for individuals and businesses this year as tax increases and the phasing out of government support, especially for utility bills, will be difficult. In April, the average electricity bill for a household in the UK will rise from £2,500 to £3,000.

“We are not yet in a winning streak for the British economy,” said George Lagarias, chief economist at accounting firm Mazars. “Variables are becoming more and more unpredictable. We see this trend continuing and may worsen in the near future.”

Mr Lazarias added that the global economy still looks “significantly unbalanced”, mainly because consumer behavior continues to be affected by inflation and higher cost of living. This means that there may be “larger fluctuations in growth and inflation” than we have seen so far, which will skew all forecasters’ models.

According to Thomas Pugh, an economist at accounting, tax and consulting firm RSM UK, the recession has been delayed until the end of this year, not reversed entirely. Ruth Gregory, senior economist at Capital Economics, said that while the numbers are “undeniably encouraging,” they predict a recession sometime in the first half of 2023.

Signs We’re Not in a Recession

Economic indicators in November were significantly better than in the previous month. Consumers flocked to stores in the run-up to Christmas, pubs and bars got a huge boost from World Cup fans,

The services sector is the engine of the UK economy, growing 0.2% in November 2022 after rising 0.7% (versus 0.6% in previous ONS data) in October 2022. Computer programming and telecommunications were among the most efficient sectors. there.

Suren Thiru, director of economics at the Institute of Chartered Accountants in England and Wales, said this is evidence that the UK economy has turned out to be more resilient than many feared.

“The positive November results are delaying rather than softening recession prospects as rising inflation, higher unemployment, higher interest rates and higher taxes are likely to dampen activity for much of this year,” he added.

James Smith, senior economist at investment bank ING, downplayed the likelihood that the UK will experience a more severe recession than other developed countries.

“We expect a peak GDP contraction of just over 1.5 percent, which is closest to the magnitude of the recession of the early 1990s,” he said.

“And despite the UK’s many problems, especially in the labor market, we are not sure that this year the UK will be a major exception compared to the rest of Europe when it comes to reducing GDP, although it will probably end up at the bottom of the list. Half lies. . take.”

What does this mean for your money

The impact of a recession on your personal finances is less immediate than the impact of rising interest rates or rising inflation.

Part of the amount needed to calculate a country’s GDP, which is a measure of overall economic activity, is consumer demand, which is reflected in retail sales, which in turn are determined by the purchasing power of households.

With inflation still above 10 percent and the cost of living crisis still engulfing much of the country, it’s easy to see that many households are still under pressure and have lower disposable income.

This, in turn, means companies bring in less money, making them more likely to have to cut costs wherever possible, including through job cuts. As a result, the number of jobs will often increase and unemployment will rise as fewer companies will be able to hire more employees.

This, in turn, could also lead to a reduction in industrial and industrial production, which could lead to a drop in exports and a further recession in the economy. When inflation contributes to a recession, the cost of raw materials to manufacture products increases, as does the cost of transportation, which leads to higher prices for goods and a fall in demand.

As businesses feel the pressure of a recession, they may also feel the impact on your investment (if any). This includes individual stocks and shares, index funds, ISAs that track the stock market, and your annuities, all of which could drop in value if there is a prolonged economic downturn.

Another important factor is interest rates. Many expect the Bank of England to raise rates more than expected.

One of the bets, Katherine Mann, warned of this earlier this week, saying that a “significant and larger number” of households and businesses expect inflation to hover around 4-5 percent in three years. Keeping the bank’s inflation target at 2 percent may require more aggressive rate hikes.

She added that the UK economy may need a “substantial recession” to contain future inflation expectations and that rising inflation expectations “keep me up at night”.

If interest rates rise again, this will lead to higher mortgage payments for thousands of UK homeowners and make it even more difficult for new buyers to get a mortgage. Borrowing costs may also continue to rise, although this may slightly increase the savings rate.

As AJ Bell’s Ms. Hewson notes, we will feel the effects of the recession “in every bill we pay, in every purchase we make, and in every trip we take.”