UK narrowly avoids recession amid living standards downturn

The UK avoided a recession by the narrowest of margins last year, but with household incomes falling, families are still living through a living standards downturn, the Resolution Foundation said today (Friday) in response to the latest ONS GDP data.

GDP in Q4 2022 was broadly flat, following a contraction in Q3, with weak trade offset by rising consumption and investment. As a result, the UK has recorded the fastest growth of any G7 economy in 2022 (4 per cent), while still being the only G7 economy not to have returned to its pre-pandemic size (down 0.8 per cent since Q4 2019).

However, the UK economy is not out of the woods yet, with both the Office for Budget Responsibility and the Bank of England forecasting a return to recession this year. The picture on living standards is clearer still, with real household incomes on track to fall this year and next off the back of the highest inflation in four decades.

More positively, the sharp fall in wholesale gas prices since the summer are set to drive down inflation later this year, easing the cost-of-living crisis, and boosting the wider economy by giving households more spending power.

James Smith, Research Director at the Resolution Foundation, said:

“The UK avoided a rapid return to recession last year by the narrowest of margins. But it is not out of the woods yet, and families are still living through a living standards downturn.

“The longer-term picture is more worrying, with the UK economy yet to return to its pre-pandemic size having suffered a prolonged period of weak growth since the financial crisis.

“However, falling wholesale gas prices offer hope for households and the wider economy – with inflation on track to fall sharply later this year.”