The UK narrowly escaped recession in 2022 after the economy recorded zero growth between October and December, according to latest figures from the ONS.
This is despite a 0.5 per cent fall in economic output during December, partly driven by strikes, prompting a warning from Chancellor Jeremy Hunt that this underlying resilience, did not mean we are “out of the woods”.
A recession is still on the cards later this year, according to the Bank of England. But it will be shorter and less severe than previously thought.
Business was quick to react. Tommaso Aquilante, Associate Director of Economic Research at Dun and Bradstreet said: “Growing by 4 per cent, the UK economy has proven more resilient than expected in 2022. And yet there is clear evidence of weakening in economic activity, which has stagnated in the fourth quarter. The economy has avoided a recession by just a whisker, but it’s likely to be flirting with one in 2023, and consequently, there are challenges ahead for businesses.
“Credit risk has increased significantly, with business liquidations being consistently above pre-pandemic levels for a while. Businesses are going to have to be exceptionally diligent when managing their financial pipeline. To better serve customers and preserve cash flows and ensure businesses are resilient to the challenges ahead, a comprehensive monitoring of risks and opportunities along product lines and supply-chain ramifications is essential.”
Douglas Grant, Group CEO of Manx Financial Group, (pictured above) said: “While of course there is much to be positive about today’s figures, we are still facing a bleak picture thanks to another year of expected sluggish growth. Last year bought a stormy and turbulent environment for SMEs and this announcement does little to suggest 2023 will be any better.
Calls for sector focused permanent government-backed loan scheme
“On top of unprecedented market volatility seen in the last quarter, the GDP figure will compound the worst effects of rising inflation, the energy crisis businesses faced this winter as well as the Bank of England’s interest rates rises. We believe that demand for liquidity support in the UK is going to soar to levels not seen since the onset of Covid lockdowns as firms desperately seek vital capital.”
“For some time, we have been calling for a sector focused permanent government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs. As the government looks for other ways to power the economy’s resurgence, the importance of a permanent scheme should not be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. We very much hope this is something that becomes a reality.”
Aquilante: clear evidence of weakness
And Federation of Small Businesses Policy Chair Tina McKenzie said that while it was positive that the UK had “technically avoided a recession in the second half of last year, the news will come as cold comfort to many thousands of small businesses”.
She added: “In particular, the 0.5 per cent fall in GDP in December is a red flag showing the economy stalled at the end of 2022, just when small firms were hoping for a traditional festive boost.
“Looking ahead, the IMF and the Bank of England both predict a contraction in the size of the UK’s economy this year, leaving small firms facing a long period without growth. Just next month, many small firms who fixed their energy bills last summer as prices rocketed are worried that they will see three- or four-fold increases when the Government’s Energy Bill Relief Scheme shuts down, making a number of them unviable.
“Our headline Small Business Index confidence tracker fell deeper into negative territory in the last quarter of 2022, at -46 points – far lower than it was during the Omicron lockdown, and only just an improvement from the depth plumbed during the second national lockdown in the final quarter of 2020.
“That’s why we’re greeting today’s news with a strong dose of caution.”
George Lagarias, Chief Economist at Mazars blamed poorer consumption as consumption deteriorated, adding: “The larger-than-expected contraction for December means that the trend is negative. As time passes, people increasingly dig into their savings and re-mortgage at higher rates.
“With energy prices remaining high and the government having no fiscal room to help, the cost of living crisis eats more into disposable income with every passing day. Barring a positive unexpected event, the next few months could be some of the most difficult for UK consumers in recent memory.”