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The UK economy returned to growth in November, according to official figures that are being closely watched amid fears the prospect of recession remains on a knife edge.
The Office for National Statistics (ONS) reported an early estimate for output growth of 0.3% for the month – recovering from a 0.3% decline witnessed in October when many weather-sensitive sectors were hit by heavy rain.
The data showed retail was a major contributor to that growth as Christmas shopping got into gear with Black Friday sales.
Despite that, there are two scenarios under which a recession – that’s two consecutive quarters of contraction – could still materialise.
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Revisions to ONS figures have the economy recording zero growth in the second quarter of 2023. Any further determination downwards would tick the box because, as things stand, the economy fell by 0.1% in the following June-August quarter.
The other possibility is that the third quarter of negative growth is followed by another between October and December.
ONS chief economist Grant Fitzner said of the latest data: “The economy contracted a little over the three months to November, with widespread falls across manufacturing industries, which were partially offset by increases in public services, which saw less impact from strike action.
“GDP bounced back in the month of November, however, led by services with retail, car leasing and computer games companies all having a buoyant month.
“The longer-term picture remains one of an economy that has shown little growth over the last year.”
Growth has essentially been flatlining due to the impact of the surge in costs since Russia’s invasion of Ukraine in February 2022 and Bank of England action to tame the pace of that price growth.
The series of 14 consecutive interest rate rises imposed by the Bank is designed to choke growth by taking demand out of the economy.
It is a balancing exercise as you don’t want to cause more hardship, such as through unemployment, by hiking borrowing costs too far.
That programme was paused late last summer amid evidence it was having the desired effect as the rate of inflation was down sharply from its peak above 11%.
Data has not flagged renewed concerns since with key indicators for the Bank, such as wage growth, also easing from highs seen in mid-2023.
Financial markets and the Bank are at odds, however, on the timing of potential interest rate cuts – a move that would fan the flames of the current mortgage price war even more.
Markets see the Bank cutting its main interest rate from the current 5.25% level to around 4% over the course of the year, likely beginning in May.
A lift in economic growth will not help the Bank’s position move towards that of the markets and members of the monetary policy committee remain worried that inflation – at 3.9% – is still almost double its target rate of 2%.
Upwards pressures remain the risk of higher prices from disruption to shipping in the Red Sea.
Chancellor Jeremy Hunt said of the ONS data: “While growth in November is welcome news, it will be slower as we bring inflation back to its 2% target.
“But we have seen that advanced economies with lower taxes have grown more rapidly, so our tax cuts for businesses and workers put the UK in a strong position for growth into the future.”
Liberal Democrat Treasury spokesperson, Sarah Olney, responded: “This Conservative government has brought us nothing but stagnation.
“Sunak’s talk of turning a corner has not survived contact with economic reality.
“This no growth prime minister has no plan and no idea how to get the economy moving again.”
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