The British economy unexpectedly expanded in November, boosted by strong service activity linked to the World Cup, supporting the case for the Bank of England to raise rates at its next meeting.
Gross domestic product increased by 0.1 percent between October and November 2022, the Office of National Statistics said on Friday. A Reuters poll of economists had expected a contraction of 0.2 percent.
“The economy grew a little in November with increases in telecommunications and computer programs helping to push the economy forward,” said Darren Morgan, director of ONS economic statistics. “Pubs and bars are also good when people go out to watch World Cup matches.”
November’s output expansion was “undoubtedly encouraging,” said Ruth Gregory, an economist at Capital Economics, explaining that the government’s spending on living payments meant households had more money in November.
November’s GDP growth could mean the UK economy avoids a technical recession, defined as two consecutive quarterly contractions, by the end of 2022, after output fell in the third quarter.
This “will only increase the pressure for the Bank of England to raise the interest rate more than 3.5 percent, perhaps to 4.5 percent in the coming months”, said Gregory.
Markets have a 57 percent chance that the Bank of England will raise rates by 50 basis points from the current 3.5 percent at its next meeting on February 2. The BoE is fighting very high inflation.
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Despite resilience in November, the economy has struggled under the weight of high inflation and rising borrowing costs. In the three months to November, the economy contracted by 0.3 percent compared to the previous three months.
In November, output was still smaller than at the most recent peak in May 2022 and still 0.3 percent below February 2020, before the pandemic. Output from consumer-facing services, such as shops and restaurants, was 8.5 percent below pre-coronavirus levels.
This is in contrast to all other G7 economies whose GDP has recovered from the health crisis in the third quarter.
Thomas Pugh, an economist at consultancy firm RSM UK said the UK’s recession was “delayed, not reversed” as consumer spending would stall as pressure on household real incomes increased.
“We continue to think that GDP will fall sharply in Q1 and Q2,” said Samuel Tombs, an economist at Pantheon Macroeconomics because the government has stopped paying the cost of living for low-income households in Q1, and then it will cut energy. price support in Q2.
The average of leading economists by Consensus Economics forecasts that UK GDP will shrink by 1 percent in 2023, a bigger decline than the autumn forecast of 0.1 percent for the euro zone and in contrast to the 0.25 percent expansion expected in the US.
Separate ONS data, also published on Friday, showed that the fall in gas prices helped reduce the UK’s large trade deficit by £6.5bn to £20.2bn in the three months to November compared with the previous three months.
Chancellor Jeremy Hunt said: “The most important help we can give is to stick to our plan to reduce inflation this year to get the economy growing again.”