Pressure on UK households and businesses remains as inflation persists. Despite slowing for two consecutive months, UK annual inflation is still at record highs and well above the central bank’s 2% target. According to the Office for National Statistics (ONS), the annual CPI increased by 10.5% in December 2022 from 10.7% in November and 11.1% in October. The main drivers of inflation were housing and household services (mainly electricity, gas and other fuels) and food and non-alcoholic beverages, 26.6% and 16.8% respectively.
In its fight against inflation, the Bank of England raised interest rate by 50 basis points, bringing the Bank Rate to 4%. The central bank started increasing rates back in December 2021, making its latest monetary policy decision in February 2023 the tenth consecutive rate hike. At its February meeting, the Monetary Policy Committee (MPC) also revised its economic outlook, forecasting a milder recession than previously anticipated in the November projections.
Hitting the British economy is not only the pandemic and energy shocks but also Brexit, making it the only G7 member with a weaker economy than it was before the pandemic.
Today, the ONS released its preliminary GDP reading for the fourth quarter of 2022 and the report showed 0% growth in Q4, from a 0.2% contraction in Q3. This means that the UK barely avoided recession. The quarterly GDP level in Q4 2022 is currently 0.8% below its pre-Covid level. The British economy is estimated to have expanded by 4% in 2022.
