Updated: Jul 31
The UK's GDP grew by 0.3% in January, beating economists' forecast of 0.1% growth, despite ongoing cost-of-living pressures and industrial unrest. However, the economy is still 0.2% smaller than before the pandemic, and a recession remains possible. The Bank of England is under pressure to raise interest rates to combat double-digit inflation, with money markets predicting a 75 basis point increase to 4.75% by year-end.
The employment rate increased by 0.2 percentage points in the three months to December 2022, driven by an increase in part-time workers, but the unemployment rate also increased by 0.1 percentage points, with more young people out of work. The economic inactivity rate decreased by 0.3 percentage points, driven by young people previously inactive because they were students, retired, or long-term sick. There was also a record-high net flow out of economic inactivity, with people moving from inactivity to employment. However, the estimated number of vacancies fell by 76,000 in November 2022 to January 2023, reflecting uncertainty across industries due to economic pressures.
The UK's highest employment rate estimate for the three months ending December 2022 was in the South West, while the lowest was in the North East, and Scotland saw a record-high employment rate. The government is considering measures to get more people aged 50 to 64 back to work, including changes to pensions, childcare, and opportunities to retrain. Higher energy bills are also expected to hit UK homes next year, even if the government extends support for consumers.
The postal and courier sector saw activity slump by 10.5% in December due to strikes but rebounded by 6.4% in January, helping the transport and storage sector grow by 1.6% on the month. The report also highlights the rising energy bills for UK homes, stating that even with government support, households should expect higher bills next year. This comes amid concerns of a potential energy crisis due to a number of factors, including gas price hikes and supply chain issues.
On the labor front, the government is expected to take measures to encourage more people aged 50 to 64 to enter the workforce as part of its upcoming budget. The demographic has been notably absent from the labor force, limiting the UK's growth potential and tax revenues, and threatening a pensions crisis as baby boomers retire. Chancellor Jeremy Hunt is likely to address the issue in his budget on March 15.
In terms of the employment market, the UK's unemployment rate increased by 0.1% in the three months to December 2022, with a higher number of unemployed people aged 16 to 24. However, the economic inactivity rate decreased by 0.3%, largely driven by previously inactive 16 to 24-year-olds who were students, retired or long-term sick. There was also a record-high net flow out of economic inactivity, with people moving from economic inactivity to employment.
There has been growth in the average total pay and regular pay, but in real terms, growth in total and regular pay fell by 3.1% and 2.5%, respectively, in October to December 2022. This is likely due to the ongoing cost-of-living squeeze, which has put pressure on household budgets and limited consumer spending.
Despite the challenges facing the UK economy, the GDP grew by 0.3% in January, exceeding economists' forecasts and raising hopes of avoiding a prolonged recession. KPMG UK's Chief Economist Yael Selfin notes that while a recession is still possible, it is likely to be shallower and shorter than expected due to stronger business sentiment and a steady fall in inflation. However, the Bank of England is under pressure to raise interest rates to combat double-digit inflation, with money markets predicting a 75 basis point increase to 4.75% by year-end.
By Connor Pearce