Recession? Five graphs that show where the UK economy is and where it is heading

Are we in a recession? Aren’t we in a recession? Are we headed into a recession?

At this point, who knows. At the start of the year, everyone said “yes definitely, and a bad one”.

Now, those projections look a bit overcooked. Essentially, it’s on a knife edge.

Morning Wire takes a look at the 5 graphs that illustrate how the UK economy is performing right now, and provides some insight into where it’s heading this year.

UK inflation has raged for more than a year and is still rising

A combination of supply chains wilting under the weight of a sudden burst in demand after pandemic restrictions were canned; Russia’s invasion of Ukraine bumping international energy prices higher and (some) sectors fattening up profit margins has fuelled inflation for more than a year.

CURRENT LEVEL: 10.4 per cent

PROJECTION FOR END OF YEAR: 2.9 per cent

Bank of England has hiked interest rates eleven times in a row

The Bank of England has launched its most aggressive interest rate hike cycle since the 1980s to try to tame inflation. It signed off its first increase in December 2021, of 15 basis points, and earlier this month sent them 25 basis points higher to a post-financial crisis high.

CURRENT LEVEL: 4.25 per cent

PROJECTION FOR END OF YEAR: 4.25 per cent

Pay growth has trailed inflation for more than a year (% monthly annual change)

Despite private sector wages growing at their fastest pace for decades (around seven per cent annually), inflation has eroded any gains the average worker has received. On some measures, the rate of price increases has topped pay growth for nearly a year and a half.

CURRENT LEVEL: -4.4 per cent

PROJECTION FOR END OF YEAR: Minus six per cent over two years

UK GDP is still below its pre-pandemic level

Britain is the only rich country (in the G7 group) to have an economy that is below pre-pandemic levels. Forecasts from consultancy KPMG out earlier this month projected the UK will also be the only G7 economy to shrink in 2023, although the dire projections from the Bank of England and International Monetary Fund at the turn of the year now look very, very overblown.

CURRENT LEVEL: Monthly growth 0.3 per cent

PROJECTION FOR END OF YEAR: -0.2 per cent for 2023 as a whole

Vacancies have trimmed in response to the economic slowdown

Businesses have been reining in hiring in response to a slowdown in demand caused by higher interest rates and inflation eroding household budgets. Firms have likely filled vacancies, which ballooned last summer, meaning they don’t need to keep looking for more staff.

CURRENT LEVEL: 1.124m

PROJECTION FOR END OF YEAR: Unemployment rate 4.1 per cent