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Flatlining UK economy continues to flirt with recession

Author: ICAEW Insights

Published: 13 Apr 2023

Latest official estimate confirms the UK economy failed to grow in February, as service sector and industrial output fell amid strike action and high inflation.

The monthly GDP figures released on Thursday 13 April 2023 by the Office for National Statistics (ONS) reported that UK gross domestic product (GDP) is estimated to have recorded zero growth in February 2023, after an upwardly revised increase of 0.4% in January. Monthly GDP is now estimated to be 0.3% higher than its pre-COVID-19 levels (February 2020). The three-month-on-three-month growth measure (a better measure of the underlying trend) was 0.1% in the three months to February, compared with the previous three-month period.

The services sector fell by 0.1% in February, following growth of 0.7% in January. The largest downward impact on services was education, which fell 1.7% in a month amid teacher strike action. Public administration was the second largest contributor, falling by 1.1% as industrial action took place within the civil service during the month.

Industrial production output fell by 0.2% in February, after a downwardly revised fall of 0.5% in January 2023. Electricity, gas, steam and air conditioning supply fell by 2.2% and was the largest contributor to the fall. Manufacturing output remained flat in February but saw declines in seven of its 13 sub-sectors.

Construction sector output rose by 2.4% in volume terms in February, following a 1.7% fall in January. The increase in monthly construction output came from increases in both repair and maintenance (4.5%) and new work (1.1%) on the month, with eight out of the nine sectors seeing an increase on the month.

Commenting on the latest ONS GDP figures, Suren Thiru, Economies Director at ICAEW, says: “These figures suggest that the economy has lost momentum as sky-high inflation and strike action continue to drag on key drivers of UK GDP, notably services and industrial production.

“Recession fears are likely to stalk the UK for some time as the boost to incomes from easing inflation and lower energy bills is substantially offset by rising taxes and the lagged impact of hiking interest rates. 

“A struggling economy and strong likelihood of materially lower inflation should give the Monetary Policy Committee sufficient scope to keep rates on hold next month. Raising rates would further weaken our growth prospects and risk further banking volatility.”

For further information, read the ONS Monthly GDP estimate.

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