Week ahead: UK economy to narrowly avoid recession but GDP still expected to shrink

The UK economy narrowly avoided a recession at the end of last year, new official figures out this week are expected to reveal.

City traders think new GDP numbers from the Office for National Statistics on Friday will show the economy contracted 0.3 per cent in December, meaning the UK will have just about skirted a technical recession, defined as two consecutive quarters of contraction.

Although the technical slump is expected to have been avoided, the monthly negative figure could signal where the economy is headed over the coming year.

The Bank of England last week repeated its recession warning from November, although its new forecasts were much more optimistic, with a peak to trough fall of just one per cent of GDP now pencilled in instead of the near three per cent hit.

“Driving the drop in data will likely be a combination of weather disruption, and a pick up in labour disputes across the public sector, transport sector and health sector in particular,” Sanjay Raja, senior economist at Deutsche Bank, said.

However, analysts at Investec reckon output shrank by just 0.1 per cent in December, mainly due to the “cold month” boosting “utility output”.

Economists reckon the economy will have had to contract at least 0.4 per cent for quarterly GDP to be negative, which would tip the country into recession.

Any bigger than forecast GDP drop is likely to knock investor sentiment and drive London’s FTSE 100 index lower.

Last week, the index reached its highest level ever, going over the 7,900 point record set in May 2018. It eventually gave up some of those gains to close the week at 7,901.80 points.

FTSE 100 climbed nearly two per cent last week

Its mid-cap, domestically-focused peer, the FTSE 250, climbed 0.79 per cent last week to finish above the 20,000 point mark.

New data from lender Halifax on Tuesday is anticipated to reveal house prices dropped over the last month, chiming with separate figures released by Nationwide and Zoopla.

On the corporate front, energy giant SSE updates markets on Tuesday and European banks post final results.

Pharmaceutical giant and Covid-19 vaccine maker AstraZeneca releases final year results on Thursday, as does consumer goods firm and Marmite maker Unilever.