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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

UK economy avoids recession but businesses still wary

Fresh produce are displayed at a fruit and vegetable stall at Portobello Road in London. - Reuters
Fresh produce are displayed at a fruit and vegetable stall at Portobello Road in London. - Reuters
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LONDON: Britain's economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households' finances from state energy bill subsidies but falling investment by businesses.


With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1 per cent between October and December after a preliminary estimate of no growth.


GDP in the third quarter was also revised to show a 0.1 per cent contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.


Two consecutive quarters of contraction would have represented a recession.


Despite the improvement, British economic output remained 0.6 per cent below its level of late 2019, the only G7 economy not to have recovered from the Covid-19 pandemic.


"The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy's performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard," Investec economist Philip Shaw said.


The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10 per cent.


Since then, a string of economic data has come in stronger than expected by analysts.


Ruth Gregory at Capital Economics said Friday's figures showed high inflation had taken a slightly smaller toll than previously thought.


"But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year," she said.


House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.


The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.


Britain's dominant services sector rose by 0.1 per cent, boosted by a nearly 11 per cent jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.


Manufacturing grew by 0.5 per cent, driven by the often erratic pharmaceutical sector, and construction grew by 1.3 per cent.


Individuals' savings were boosted by the government's energy bill support scheme and households' disposable income increased by 1.3 per cent after four consecutive quarters of negative growth.


The BoE expects Britain's economy to have contracted by 0.1 per cent in the first three months of 2023 but it forecasts slight growth in the second quarter.


The outlook has improved thanks in large part to falling international energy prices and a strong jobs market.


But the picture could darken again if recent turmoil in the global banking sector leads to lenders reining in loans.


The data suggested businesses remained cautious. Business investment fell .2 per cent in quarterly terms, a sharp downgrade from a first estimate of a 4.8 per cent rise after changes to the way the ONS calculates seasonal adjustments.


Earlier on Friday, a survey painted a more upbeat picture for businesses.


Finance minister Jeremy Hunt this month announced new tax incentives to encourage companies to invest, although they were less generous than a previous scheme and came just as corporate tax is due to jump.


The ONS said Britain posted a shortfall in its current account in the fourth quarter of £2.5 billion, or 0.4 per cent of GDP.


Excluding volatile swings in precious metals, the shortfall fell to 3.3 per cent of GDP from 4.2 per cent in the third quarter.


Britain's financial account surplus - which shows how the current account deficit was funded - comprised large net inflows of short-term, "hot" money. Foreign direct investment was negative in net terms for a sixth quarter running. - Reuters


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