Britain’s economy grew in November, buoyed by stronger services activity during the World Cup, in a turnaround that defied expectations and is likely to increase pressure on the Bank of England to raise interest rates.
The Office for National Statistics said on Friday that gross domestic product increased by 0.1 percent between October and November 2022. A Reuters poll of economists had forecast a contraction of 0.2 percent.
“The economy grew slightly in November with increases in communications and computer programs helping to move the economy forward,” said Darren Morgan, Director of the Office for National Statistics. “The pubs and bars were also doing well as people were going out to watch the World Cup matches.”
The expansion of output in November was “undeniably encouraging,” said Ruth Gregory, an economist at Capital Economics, and added that the UK government’s cost-of-living payments meant households had more cash in November.
November’s GDP growth may indicate that the UK economy avoided a technical recession, defined as two consecutive quarterly contractions, at the end of 2022. Output fell in the third quarter of last year.
This “will only increase pressure on the Bank of England to raise interest rates further than 3.5 per cent, possibly to 4.5 per cent in the coming months,” Gregory said of Friday’s figures.
The markets have set a 57 per cent chance that the Bank of England will raise its rate by 50 basis points from the current 3.5 per cent at its next meeting on February 2nd. Interest rates have risen sharply from 0.1 percent in November 2021. The Bank of England is struggling with very high inflation.
Although resilient in November, the UK economy was struggling under the weight of high inflation and soaring borrowing costs. In the three months through November, the economy was down 0.3 percent from the previous three months.
In November, production was still lower than it was at its last peak in May 2022 and remained 0.3 percent below its level in February 2020, before the coronavirus pandemic. Output from consumer-oriented services, such as stores and restaurants, was 8.5 percent lower than pre-pandemic levels.
This is in contrast to all other G7 economies where GDP had already recovered from the impact of the health crisis by the third quarter.
The UK recession has been “delayed, not cancelled,” said Thomas Pugh, economist at consultancy RSM UK, with consumer spending likely to falter as pressure intensifies on household real income.
“We still think that GDP will decline significantly in the first quarter and the second quarter,” added Samuel Tombs, an economist at Pantheon Macroeconomics, who confirmed that the British government will cut energy subsidies significantly in the second quarter.
Leading economists surveyed by Consensus Economics expect UK GDP to contract by 1 per cent in 2023, a much larger drop than the expected 0.1 per cent drop for the eurozone and in contrast to the expected 0.25 per cent increase in the US.
Separate ONS data, also published on Friday, showed the recent drop in gas prices helped narrow the UK’s large trade deficit by £6.5 billion to £20.2 billion in the three months to November compared to the previous three months.
Lower gas prices are also expected to reduce pressure on household finances as well as provide some savings to the government.
Chancellor Jeremy Hunt said: “The most important help we can give is to stick to the plan to halve inflation this year until we get the economy to grow again.”