The UK managed to narrowly avoid a recession at the end of last year, but that is unlikely to be the case in 2023, with both the Office for Budget Responsibility and the Bank of England forecasting a return to recession this year.
ONS GDP data shows that GDP in Q4 2022 was flat, after a contraction in Q3, with weak trade offset by rising consumption and investment.
As a result, the UK has recorded the fastest growth of any G7 economy in 2022 (4 per cent), while still being the only G7 economy not to have returned to its pre-pandemic size (down 0.8 per cent since Q4 2019).
Federation of Small Businesses (FSB) policy chair Tina McKenzie said: “While it is positive that the UK has technically avoided a recession in the second half of last year, the news will come as cold comfort to many thousands of small businesses.
“In particular, the 0.5% fall in GDP in December is a red flag showing the economy stalled at the end of 2022, just when small firms were hoping for a traditional festive boost.
“Looking ahead, the IMF and the Bank of England both predict a contraction in the size of the UK’s economy this year, leaving small firms facing a long period without growth. Just next month, many small firms who fixed their energy bills last summer as prices rocketed are worried that they will see three- or four-fold increases when the Government’s Energy Bill Relief Scheme shuts down, making a number of them unviable.
“Our headline Small Business Index confidence tracker fell deeper into negative territory in the last quarter of 2022, at -46 points – far lower than it was during the Omicron lockdown, and only just an improvement from the depth plumbed during the second national lockdown in the final quarter of 2020.
“That’s why we’re greeting today’s news with a strong dose of caution.
“Inflation is still a concern, and its effects will linger in the economy even once it falls back into a range we are more used to seeing. Interest rates remain high in the fight to curb inflation, with small businesses caught between elevated prices and greater debt costs.
“On the plus side, financial markets are performing well, and the reopening of China’s economy will help improve general global economic conditions.
“We want small firms to be in a position to take advantage of any improving economic conditions – and to create a groundswell of growth which will boost the overall economy. Setting them up for growth must be a key focus of the newly-created business and trade department, and we are looking to the Budget in mid-March to set out a positive agenda for small businesses and the self-employed.
“Late payment must be tackled, to get small suppliers the funds they are due in a timely fashion. The day-one taxes – like business rates – that take a chunk out of budgets before small firms make a penny in turnover should be examined, while the VAT threshold should be increased to encourage revenue growth.
“The cuts to R&D tax credits should be reversed, given the huge contribution to overall R&D made by small firms, and the Government’s own newly-reaffirmed focus on science and technology. More people should be helped to reskill and upskill, while bringing in Help to Green vouchers would allow small firms to cut their emissions and their energy bills, while boosting the economy.
“We know what will help, and now need the Government to work with us and turn an economy with GDP in the doldrums into one galvanised by a dynamic and growing small business community.”
Ben Jones, lead economist, CBI, said: “We may have avoided a technical recession late last year, but we probably won’t avoid one this year. While we expect that the downturn will be shallow, if we act now, we can make the recession even shorter than predicted.
“All eyes are on the Chancellor’s March budget, when businesses will be looking for a bolder approach to tackling labour and skills shortages and falling business investment. In particular, firms will be looking for a permanent replacement to the super-deduction, as well as a focus on innovation and the green economy, to help boost economic growth in the years ahead.”
James Smith, research director at the Resolution Foundation, said: “The UK avoided a rapid return to recession last year by the narrowest of margins. But it is not out of the woods yet, and families are still living through a living standards downturn.
“The longer-term picture is more worrying, with the UK economy yet to return to its pre-pandemic size having suffered a prolonged period of weak growth since the financial crisis.
“However, falling wholesale gas prices offer hope for households and the wider economy – with inflation on track to fall sharply later this year.”
