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Modest January rebound highlights continued recession risk

Author: ICAEW Insights

Published: 10 Mar 2023

Latest official estimate confirms that the UK economy returned to growth in January as the service sector helped lift overall activity, but construction and industrial output fell.

The monthly GDP figures released on Friday 10 March 2023 by the Office for National Statistics (ONS) reported that UK gross domestic product (GDP) is estimated to have increased by 0.3% in January 2022, after a contraction of 0.5% in December. Monthly GDP is now estimated to be 0.2% lower than its pre-COVID levels (February 2020). The three-month-on-three-month growth measure (a better measure of the underlying trend) was flat in the three months to January, compared with the previous three-month period.

Services grew by 0.5% in January, following a fall of 0.8% in December. The largest driver of the growth in services in January was education, which grew by 2.5% as school attendance returned to normal levels following a large drop in December.

Transport and storage services grew by 1.6% on the month; the main contributor was an increase of 6.4% in postal and courier activities. This growth comes after a fall of 10.5% in December due to the impact of postal strikes.

Arts, entertainment and recreation grew by 3.4% in January. This was largely driven by sports, amusements and recreation activities, which grew by 8.9% as Premier League football returned to a full schedule following fixtures being postponed in November and December for the World Cup.

Production output fell by 0.3%, after growth of 0.3% in December. The sector saw falls in two of its four subsectors, with manufacturing being the largest contributor to the production sector’s negative growth. Manufacturing saw declines in seven of its 13 subsectors, with the manufacture of basic pharmaceutical products being the largest negative contributor. Construction output dropped 1.7% in January, the weakest outturn since June 2022.

Commenting on the latest ONS GDP figures, Suren Thiru, Economies Director at ICAEW, said: “This modest rebound suggests that the economy is still on a downbeat path as eye-watering inflation bites into household incomes and curbs business activity.

“We’re likely to continue flirting with recession throughout much of 2023, as high inflation, tax rises and the lagged effect of rising interest rates shrinks consumer spending power, despite a boost from easing energy costs.

“The Spring Budget could have a significant impact on the UK’s near-term growth prospects. While extending energy support will provide some relief to struggling households, aggressive tax rises would risk eliminating any lingering momentum from the economy.”

For further information, read the ONS Monthly GDP estimate.

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