There can be no doubt that the economic climate in the UK remains strained at present, with January’s rate of inflation remaining slightly above 10.1%.
While this is far beyond the Bank of England’s (BoE’s) inflationary target of 2%, there remains renewed hope that the UK could recover much quicker than expected in 2023 and even avoid the once inevitable threat of recession.
So, although the UK economy and its GDP is still poised to contract overall this year, the path to recovery is much shorter and closer than previously thought. We’ll explore this in the article below, while appraising the wider outlook for GDP growth in 2023.
What is GDP?
Let’s start with answering the basic question; what is GDP?
This term stands for ‘Gross Domestic Product’, while it describes a measure of the size and health of a country’s economy over a period of time (typically a single quarterly or annually).
It’s often used as a comparative economic tool too, to appraise the differences between nations or regions across the globe.
But how is GDP calculated? Well, there are three key factors that are used to calculate GDP, including the following:
- The total value of goods and services (economic output) produced within the published timeframe
- Cumulative income in the region
- Or potentially what every citizen has spent during a specified period
Clearly, these individual factors offer a direct insight into factors such as labour market growth and discretionary spending, while they’re also combined to calculate GDP and provide a more detailed insight into a country’s economic performance.
Why GDP is on the Up in 2023
It was previously estimated that the UK would slip into a recession last December, with the Bank of England (BoE) predicting that this period of contraction would subsequently last throughout the entirety of 2023. However, economists were surprised as the economy grew marginally during the final quarter of last year, avoiding a second consecutive monthly contraction and a slip into a technical recession.
Growth of 0.1% and 0.5% in October and November respectively were key here, while it’s now expected that a recession may also be avoided during Q1 of 2023.
Further optimism emerged in early February, when S&P Global and the Chartered Institute of Procurement and Supply’s composite flash purchasing managers’ (PMI) hit 53 points, up significantly from 48.5 points in January.
Crucially, this also decisively breaks the 50-point threshold that separates growth and contraction, suggesting that prosperity has returned to the private sector after six months of contraction.
This is a telling statistic, and one that may even help the UK to avoid a recession in its entirety through 2023.
A Final Look at the 2023 Outlook
January saw the Washington-based IMF issue an updated forecast for the UK economy, with an overall contraction of 0.6% being projected for 2023. This is actually 0.9 percentage points worse than was referenced three months ago, while it’s the worst forecast of any G7 nation. Even more alarmingly, it’s worse than sanctions-hit and warmongering Russia, and this is despite factoring in slightly improved economic performance and the fact that interest rates have declined incrementally during the course of the last three months.
So, despite the UK’s recent performance and surprising economic improvement of late, the region remains rooted to the bottom of the G7 table and may struggle to change this fate at any point in the coming months.
The question that remains, of course, is can the UK avoid a recession this year? Well, overall contraction certainly doesn’t mean the country will enter a technical recession, which is defined by two consecutive quarters or more of negative growth.
Because of this, it’s impossible for the UK to enter a recession this quarter, while the recent performance also suggests that this is unlikely in quarter 2.
However, there remains a chance that the UK could enter a recession in the third quarter of the year, albeit one that’s considerably shorter and less impactful than the one initially forecast by the BoE last year.
In this respect, we should be relatively thankful for small mercies, and hope that the UK can continue to tread the treacherous path of recovery through 2023 and beyond.
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