Inflation Slows As UK Avoids Recession For Now
Further to our previous article on the economy, the UK has avoided a recession for now, but only just. However, the economy may still enter recession this year, albeit that any recession may be considerably milder than was feared last year
The latest report from the Office for National Statistics (ONS) found that UK GDP contracted by 0.5% in December 2022, but was flat overall (i.e. 0%) over the final quarter of 2022 (i.e. the period October - December 2022). This meant that the UK economy avoided a technical recession in which the economy contracts in two successive quarters.
Inflation (as measured by the Consumer Prices Index (CPI)) fell from 10.5% in December 2022, to 10.1% in January 2023, having peaked at 11.1% in October 2022.
Nevertheless, despite the continuing fall in inflation, the Bank of England is continuing to shadow the increase in American interest rates. This meant that the Bank of England increased UK interest rates again, this time by 0.5% on the 2nd February 2023, from 3.50% to 4.00%.
Some, including Natwest, believe that UK interest rates have now peaked. Natwest believe that the interest rate will remain at 4% during the first quarter, before starting to fall in early 2024.
Commenting upon the latest data, Nomura Bank economist, George Moran, states that the figures "increase the likelihood of a milder recession...Less inflationary pressure should boost real incomes, and also means less financial tightening is required from the Bank of England...The picture we are getting from UK data is clearly better than economists expected a couple of months ago, but far from positive."
The deputy chief UK economist at Capital Economics, Ruth Gregory, adds: "The economy is proving to be remarkably resilient to [a potential recession in terms of] the dual drags of higher inflation and higher interest rates, and it certainly feels as though it isn’t as weak as most had feared...households and businesses have been spending the cash reserves they built up during the pandemic."
GP's May Be Told To Sign Fewer Sick Notes
According to an article in the Daily Telegraph, GP's may be advised to adopt new procedures with the objective of issuing fewer sick notes, reducing the number of workers on long term sick leave, and reducing the number of people who drop out of the labour market altogether. The proposals are being considered for possible inclusion in the Budget, which will be delivered by the Chancellor of the Exchequer, Jeremy Hunt, on the 15th March 2023.
The underlying aim behind these proposals is to reduce labour shortages within the economy.
During the 3 years up to the summer of 2022, the number of people signed off due to long terms ill health increased from 1.95 million to 2.32 million. This included an increase in the number of those with mental health problems, which increased to 313,000 from 257,000.
The Telegraph report that: "Doctors would be encouraged to focus on recommending ways people with long-term illnesses can continue to work with support rather than using sick notes to authorise them to drop out of the labour market entirely."
According to a Government representative: "The mental health benefits of work are well established. We want to do all we can to encourage as many people as possible to stay in work with the relevant support in place to help them do so, including signposting them to that support at the earliest possible opportunity."
Nevertheless, despite the Government's concern about the problem of labour shortages and the role played by recent increases in economic inactivity in those shortages, the ONS report in their latest Labour Market Overview that economic inactivity fell by 0.3% in the final quarter of 2022, to 21.4%.
