That rush of air you heard around 7am was the sound of Jeremy Hunt breathing a sigh of relief, as the Office for National Statistics announced that the UK had narrowly avoided recession in 2022. The technical definition of a country in recession is one in which GDP falls for two consecutive quarters, and having flatlined – with GDP growth of 0.0 per cent – in the last quarter of the year, the UK missed this category by a hair’s breadth.
This allowed the Chancellor to say that “our economy is more resilient than many feared”, and that while “we are not out of the woods yet”, the Conservative Party (which certainly didn’t lead us into those woods) had found the map out of the woods and was pretty sure, this time, that it was holding it the right way up.
Hunt also repeated the now rather dog-eared claim that “the UK was the fastest growing economy in the G7 last year”, which is technically true, but not in a good way. The reason the UK’s economy appeared to grow quickly last year was that it was so badly damaged the year before: Britain experienced the largest fall in real GDP of all G7 economies in 2020, which made our economic rebound appear steeper than others. We remain the only country in the G7 that has not returned to its pre-pandemic size.
Anyone determined to celebrate the news of our stagnant economy will also need to look away from what’s inside that GDP figure. GDP is fairly contentious in the first place – the UK measures it differently to other countries, including the output of the NHS and schools as part of our economic activity. This can make our economy look comparatively faster or slower depending on conditions, but it’s also debatable whether something like a massive surge in people going to the doctor (as happened in 2021) really represents an economy springing to its feet.
Last week another figure – which Hunt made no statement about – signified an altogether darker picture. A purchasing managers’ index (or PMI) is a measure of real business activity, compiled by looking at how much companies are spending on new orders, hiring and investment. PMI is normally given as a single number between 0 and 100: over 50 means expansion, under 50 means contraction. This is used by economists as a leading indicator of where other numbers, such as GDP, will head. The UK’s services sector – which is most of our economy, representing 80 per cent of Gross Value Added – reached 48.7 last week, its lowest figure for two years. Our services PMI has not been over 50 since September 2022. Actual spending and investment among businesses in the largest part of the economy has either contracted or not grown for four months.
The picture is still worse in the UK’s manufacturing PMI, which has been in contraction every month since August 2022; in this sector, the UK is formally in recession. Manufacturing accounts for less than 10 per cent of the UK’s economic output, but it is disproportionately important because of its contribution to research and development as well as skilled, well-paid jobs.
Manufacturing is also crucial to trade, where we find another troubling number: in 2022, the UK’s annual trade deficit widened to £108bn. As inflation causes the cost of our imports to rise, we are also selling less to the rest of the world: goods exports fell by £800m in December. Services, in which we still run a £37bn trade surplus, contracted by £1.4bn.
Hunt also confirmed this morning that the government would “stick to our plan to halve inflation this year”. This plan presumably involves asking the Bank of England to lower inflation, because that’s the Bank’s job, and the Bank has been fairly clear that this will involve inducing a recession with higher interest rates. At which point Hunt will either claim that the Bank hasn’t done its job, or that it is – as he claimed in November – “a recession made in Russia”. Thirteen years of incompetence and political chaos will of course have nothing to do with it.