UK avoids recession by a whisker but chancellor warns public finances 'haven't changed dramatically'
The UK has narrowly avoided a recession, although it won't feel like it to millions of hard up Britons, ITV News Business and Economic editor Joel Hills reports
It’s official: the UK avoided a recession in 2022, albeit by the narrowest of possible margins. Freezing temperatures, industrial action, a break in the Premier League schedule to accommodate the World Cup, parents pulling children out of school to avoid viruses and a drop in the rate of vaccinations and GP visits variously conspired to send economic output into reverse in the run-up to Christmas. The UK economy contracted by 0.5% in December and didn’t grow at all in the last three months of the year. Job done. In a technical sense anyway.
A flat-lining economy is nothing to celebrate but the chancellor was keen to emphasise the positives this morning. Jeremy Hunt pointed out that the UK experienced the fastest growth of the G7 nations (US, Japan, Canada, Germany, Italy and France) last year, which is absolutely true. He didn’t mention that the UK is also the only G7 economy not to have yet returned to its pre-pandemic size.
Joel Hills pressed the chancellor on what extra help will be given to struggling families
"The fact we have avoided recession, the fact we are the fastest growing major country last year shows there is underlying resilience in the UK economy,” the chancellor said.
"But we are not out of the woods. Inflation is still much too high and is causing pain for families up and down the country." He’s quite right. The IMF and the Bank of England still expect the UK to enter a technical recession at some point this year, it’s likely to be a while before people start to feel better off. The government has done a lot already to support households and businesses through a painful squeeze on their living standards but, as it stands, energy bills are set to rise in April (as the Energy Price Guarantee becomes less generous) and both mortgage repayments and rents are rising. This morning, the chancellor signalled that anyone hoping for more support in next month’s Budget will almost certainly be disappointed.
"I think the way to be straight with people is to say the public finances haven’t changed dramatically since the Autumn Statement, which is only three months ago," he told ITV News. The economy has performed better than feared, the market path for interest rates is lower, gas and electricity prices have eased but the chancellor is warning he has no room for additional tax cuts or spending increases on March 15. Last month, the Times reported the Office for Budget Responsibility (OBR) had told the chancellor it thought the UK’s future prospects had worsened. Brace yourself for downgrades in the Budget. The outlook for economic growth is hardly improved by the wave of strikes which continue to sweep the UK. The unions are demanding higher pay, the government insists higher pay risks stoking inflation. I asked Jeremy Hunt to explain why he thinks paying nurses in England slightly more - less than the headline rate of inflation but more than the current 4% deal - would increase prices in the shops for everyone else.
I didn’t really get an answer but the chancellor made it clear that he is not willing to borrow money to finance inflation-busting pay rises in the public sector. "If we fund additional pay rises at the levels [unions] are asking for that could only be funded through borrowing then that would be inflationary," he told me. Something has to give at some point but for now the deadlock continues.
The chancellor was no more forthcoming about Brexit, which the evidence increasingly shows is proving a dragging anchor on the economy. Jeremy Hunt was a Remainer. Before the referendum in 2016, he warned that leaving the European Union would be "a shock to the economy that would truly undermine the public finances."
I put it to him that he has been proved right and asked how big the Treasury estimates the “hit" from Brexit to be.
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The chancellor appears to have been proved right. The OBR’s analysis suggests that Brexit has cost him £13 billion in lost tax revenues this year.
But he ruled out pursuing a closer trading relationship with the EU. "We have a very good agreement with the EU," Hunt told me. "I think Brexit gives us big opportunities and we have to embrace those opportunities." The problem the government has is that while the economic costs of Brexit become clearer, the economic benefits remain elusive.
Joel Hills ask Jeremy Hunt about Brexit's impact on the UK economy
There have been a series of policy announcements that the government says Brexit has "made possible" but it’s not clear that they amount to very much in terms of growth. The creation of Freeports, the changes to Solvency II rules, and the introduction of the "Edinburgh Reforms" didn’t prevent the Bank of England from downgrading the potential growth rate of the UK economy last week. The Bank cited Brexit as a factor, it also said Brexit has caused more damage to the economy so far than it was expecting. Jeremy Hunt wouldn’t say if he has been surprised by the impact of Brexit to date.
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