The UK has avoided entering a period of recession by the slimmest of margins as figures show its trade deficit with the EU hit record levels in the last three months of 2022.
A decline in gross domestic product (GDP) of 0.5% in December was offset by increases in the two previous months to leave the economy’s performance in the fourth quarter at roughly the same level as the previous three months. Negative growth in the fourth quarter would have signalled recession, after the UK economy shrank by 0.2% in the third quarter – a figure revised up from the initial estimate of a 0.3% contraction. A technical recession is generally defined as two consecutive quarters of negative growth.
The chancellor, Jeremy Hunt, said the figures underscored Britain’s resilience, adding that they showed the economy was the fastest-growing in the G7 group of rich nations last year. However, the economy remains 0.8% below its pre-pandemic peak in 2019, in contrast with the US, which has experienced growth of 5.1% over the same period, and the 2.4% improvement among the 19 members of the eurozone. Business groups said the situation remained difficult, with one describing the drop in December as “brutal” and a harbinger of a difficult year ahead.
The dismal growth figures came as separate data showed trade with the rest of the world declined during the last quarter along with retail sales, with the normally buoyant shopping period in the run-up to Christmas failing to live up to hopes. The Office for National Statistics said the UK’s trade deficit with the EU widened in the final quarter of 2022 to its highest level since records began in 1997 as imports from the bloc rocketed to £82bn against an exports total of £49.2bn. While the deficit largely reflected the huge increase in gas imports, the ONS said there was a sharp deterioration in the balance of goods and services traded with the rest of the world. It said the shortfall widened £2.4bn to £26.8bn, which the statistics agency said was “driven by lower exports of both goods and services”.