The U.K. economy stagnated in the fourth quarter, narrowly avoiding a technical recession in the second half of 2022, but activity is likely to face a downturn this year as households and firms are hit by rapidly rising interest rates.
The U.K.’s gross domestic product stalled from October to December compared with the third quarter, preliminary data from the Office for National Statistics showed Friday. This is in line with economists’ expectations in a poll by The Wall Street Journal.
Still, the stagnation in the last three months of the year marks an improvement from the third quarter, when the economy shrank 0.2%. A technical recession is broadly defined as two consecutive quarters of declining output.
In December, the U.K. economy shrank 0.5% compared with the previous month, weighed by lower output in the services sector amid bad weather and strikes, the ONS said. However, over 2022’s last quarter the economy performed better than anticipated a few months ago as the shock from high energy prices was less bad than feared.
For overall 2022, the U.K. economy grew 4.0%, but it remained the only country among the G-7 group where output is still below its prepandemic levels.
The U.K. economy is expected to contract 0.5% in 2023, according to the Bank of England. The decline is smaller than the 1.3% fall anticipated in November, but policy makers expect the U.K. to face a mild recession throughout 2023 and 2024’s first quarter as high energy prices and increasing interest rates weigh on activity.
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