UK may avoid 2022 recession after growing 0.1% in November – as it happened

Time to wrap up, after a busy day in which the UK economy showed a little more strength than expected. A shame we can’t have the World Cup every month.

Here are today’s stories, first on the November GDP report:

Goodnight, and have a lovely weekend. Back next week, when it’s the World Economic Forum in Davos… GW

It’s been a busy week for retail news, with a flurry of updates from major shopping chains and supermarket giants.

Several did better than expected, despite the squeeze on incomes, while online specialists suffered from postal strikes and shortages of van drivers

My colleague Sarah Butler has looked at the things we’ve learned, here.

13 Jan 202310.51 EST

JP Morgan investment bankers suffer 30% bonus cut as takeover deals slump

Kalyeena Makortoff

As well as predicting a ‘mild recession’, JP Morgan has also slashed bonuses for investment bankers by 30% after a slump in takeover deals.

Wall Street’s largest lender reported a 22% drop in full-year profits to $38bn (£31bn) on Friday, having suffered the ripple effects of the economic slowdown linked to the war in Ukraine, my colleague Kalyeena Makortoff writes.

Some of its largest losses for 2022 were recorded in its investment bank, with a 58% drop in fees from dealmaking in the fourth quarter alone, contributing to a 29% decline in the division’s annual profits to $15bn.

JP Morgan’s chair and chief executive, Jamie Dimon, said investment banking fees were “down significantly in a challenging environment”. More here.

The UK recession is delayed, not cancelled, fears Paul Dales of Capital Economics.

Following the better-than-expected 0.1% growth in November, Dales says:

It’s starting to feel like a recession will never happen, but it will.

Admittedly, the government may be absorbing more of the hit to national income from the surge in the cost of energy imports than we expected. The total reduction in national income may be smaller than we previously thought too.

But we know that the surge in inflation and rise in interest rates will eventually hurt households and businesses.

As such, we still think there will be a recession. It’s just starting later than we thought and may be a bit smaller.

In the markets, the UK FTSE 100 index of blue-chip shares touched its highest level since May 2018 this morning.

The FTSE 100 traded as high as 7847, nearing the record high of 7,903 set on 22nd May 2018, led by healthcare, financials, industrials and basic materials stocks.

Hopes that the global inflation shock has peaked have lifted global markets this week.

Russ Mould, investment director at AJ Bell, says:

“A decent showing on Wall Street following news that US consumer prices dropped in December helped to lift investor sentiment in Asia and Europe on Friday.

Investors are desperate for inflation to ease back so that central banks no longer have a reason to keep putting up interest rates

Smashing through the alltime high would give overseas investors another reason to start looking more seriously at UK stocks, Mould explains:

“After the Brexit vote, UK stocks were off the menu for many international investors and valuations plummeted. This remained the case for some time until some canny players realised the opportunities to be had, leading to a wave of takeovers – decent businesses picked up on the cheap.

Wall Street isn’t making such a decent showing today, alas, after JP Morgan said it now expects a mild recession.

The Dow Jones Industrial Average has just fallen by 250 points, or 0.7%, at the open to 33939 points, with the broader S&P 500 share index down 0.77%.

Wall Street bank JP Morgan has revealed that a ‘mild recession’ is now the central case in its macroeconomic outlook.

Announcing its latest financial results, JP Morgan says it has set aside another $1.4bn to cover credit losses.

It says:

The net reserve build in the current quarter included $1.0 billion in Consumer and $343 million in Wholesale, driven by a modest deterioration in the Firm’s macroeconomic outlook, now reflecting a mild recession in the central case.

CEO Jamie Dimon said the US economy currently remains strong with consumers still spending excess cash and businesses healthy.

But he warned that the economy faces headwinds, including from inflation and the Ukraine war:

However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.

We remain vigilant and are prepared for whatever happens, so we can serve our customers, clients and communities around the world across a broad range of economic environments

The UK economy is still under “immense strain”, despite the pick-up in growth in November, says Craig Erlam, senior market analyst for UK & EMEA at trading firm OANDA.

He fears the recession is only ‘delayed’ by the pick-up in activity in November.

The optimists may put to some of the recent data as an indication of some resilience in the economy but I’m not convinced.

Take the UK, for example. It may not be in a technical recession afterall, with spending around the World Cup enabling a better performance in November, delivering growth of 0.1% after a 0.5% gain in October.

Aside from the fact that December could be worse as a result, or some of those gains could be revised out, those numbers don’t change the reality of the cost-of-living crisis and if accurate, it more likely reflects shifted spending patterns as opposed to a more willing consumer. A recession may be delayed but the economy is still under immense strain.

13 Jan 202307.11 EST

Rupert Neate

The Apple chief executive, Tim Cook, is expected to have his pay cut by almost 50% this year to about $49m (£40m) after the billionaire boss asked the company to “adjust his compensation” in the light of feedback from shareholders disappointed at the fall in the company’s share price.

Cook, 62, who became CEO after the death of the co-founder Steve Jobs in 2011, was paid $99.4m in 2022 and $98.8m in 2021. But the company said in a regulatory filing late on Thursday night that it had set a “target compensation” of $49m for 2023.

“The compensation committee balanced shareholder feedback, Apple’s exceptional performance, and a recommendation from Mr Cook to adjust his compensation in light of the feedback received,” Apple said in the filing.

Cook’s annual base salary and bonus will remain unchanged at $3m and $6m respectively. But the “targeted” amount he will be given in share-based bonuses will fall from $75m last year to $40m this coming year.

The amount given in share bonuses will also be more dependent on Apple’s share price performance than it was last year. Now 75% of the share bonus is dependent on Apple’s stock market performance, up from 50% last year.

Apple’s shares have fallen by 23% over the past 12 months to $133.41 at the close on Thursday, raising concerns among some shareholders. More here.

In another encouraging economic sign this morning, Eurozone industrial production rose more than expected in November.

Industrial production jumped by 1.0% in the euro area, statistics body Eurostat reports, which is twice as fast as economists predicted.

With Germany possibly avoiding a recession this winter (see earlier post), this could indicate Europe’s economy ended 2022 a little stronger than feared.

Separate data this morning shows that the eurozone’s trade deficit in goods narrowed month-on-month in November, as energy prices fell.

Ken Wattret, head of European analysis and insights at S&P Global Market Intelligence, says it’s now a close call whether the eurozone can avoid recession.

Activity data, surveys and nowcasts all suggest it’s a close call. However, whether GDP is slightly up or slightly down is not so important.

The key point, thankfully, is that the risk of a severe recession, and its numerous knock-on effects, has markedly diminished.

Today’s UK GDP figures once again underline the importance of hospitality in driving economic growth and recovery, says UKHospitality chief executive Kate Nicholls.

Nicholls adds:

“The World Cup provided a significant boost in November, with pubs and bars reporting sales up 30-40% on matchdays. This once again shows the power of big sporting events, even in the winter, and the important role our venues play in bringing communities together.

“However, the figures also highlight the impact strike action had on the sector and the cost of lost sales is likely to be set out more starkly in next month’s figures.

The UK outlook “undoubtedly looks bad”, but ING’s developed markets economist James Smith cautions against “overdoing the pessimism”.

Smith predicts that the economy may be flat in the last quarter of 2022 – avoiding a technical recession. But, he forecasts a decline in growth in the first quarter of 2023, with a ‘mild recession’ likely.

Smith writes:

Growth of 0.1% in November means that overall fourth-quarter GDP will most likely come in flat, though this says more about distortions and extra Bank Holidays than economic outperformance. First-quarter data is likely to show a more meaningful decline in output.

“Predicting the depth of any recession is difficult – not least because so-called ‘non-linearities’ tend to kick in when past excesses are exposed or job cuts begin to spread across industries. But for now, we agree with those looking for a mild recession by historical standards.

“We’re looking for a peak-to-trough fall in GDP of a little more than 1.5%, which would match closest with the early 1990s recession in terms of scale, if not the surrounding circumstances. And despite the UK’s many woes, particularly in the jobs market, we aren’t convinced Britain will be a serious outlier from the rest of Europe on the hit to GDP this year, even if it probably does sit in the bottom half of the pack.

“Our forecasts show the UK is likely to be towards the bottom of the pack this year when it comes to growth, for many of the reasons discussed here. But we’d emphasise that it doesn’t look like an extreme outlier either.

Our growth projections for later in 2023 – measured by 3Q23/3Q22 year-on-year growth – show Britain (-1.4%) underperforming the eurozone as a whole (-0.7%) but with a lower hit than Germany (-1.8%).”

13 Jan 202305.07 EST

Analysis: The UK may avoid a recession for now but it won’t feel like it for many

Larry Elliott

Jeremy Hunt’s response (see here) to this morning’s GDP data suggests the chancellor is not getting carried away by the performance of the economy in November, and wisely so, our economics editor Larry Elliott writes:

As the Treasury pointed out, the International Monetary Fund is predicting that a third of the world economy will be in recession this year and the UK could clearly be one of the countries affected.

Even if the economy has so far avoided recession – and that remains touch and go – it doesn’t mean it will necessarily continue to do so in the face of rising interest rates and higher taxes over the coming months.

There is also the little matter of the brutal squeeze on living standards caused by wages rising less quickly than prices. The Resolution Foundation thinktank says typical household disposable incomes are on course to drop by 7% – or £2,100 – this year. So even if the economy is not actually in recession, for many people it will still feel like it.

Here’s Larry’s analysis:

13 Jan 202305.02 EST

UK's top economic adviser, Clare Lombardelli, to join OECD

Richard Partington

The UK government’s most senior economic adviser has been hired by the OECD as its chief economist, in the first time a British person has held the role for 30 years.

Clare Lombardelli, the chief economic adviser to the Treasury, will take the position at the Paris-based club of wealthy nations after the Spring budget.

Representing 38 of the world’s leading economies, the OECD acts as a powerful forum for developing economic policy and setting international standards, including efforts to combat tax evasion and agreeing a global minimum corporation tax.

Lombardelli will lead the OECD’s economic work, replacing France’s Laurence Boone, who left the organisation last summer to join Emmanuel Macron’s government as Europe minister after four years in the role.

Her appointment comes as many of the world’s leading economies slump into recession amid sky-high inflation fuelled by Russia’s war in Ukraine and the fallout from the Covid pandemic, including in Britain.

Taking the role will come with delicate subjects for the outgoing top civil servant to handle, with the OECD among leading international bodies to highlight the self-inflicted economic damage of Brexit and Britain’s lacklustre growth performance on the world stage in recent months.

She also departs the Treasury after a period of intense political pressure, as a focal point for criticism of under Liz Truss’ brief premiership, before the disaster of the mini budget.

The chancellor, Jeremy Hunt, said Lombardelli was an “exceptional civil servant” who provided clear and level-headed advice.

Hunt said:

“I congratulate Clare on her well-deserved appointment. It’s great to have a Brit in the role and look forward to working with her in the future.”

A former Bank of England economist, Lombardelli has worked in government since 2005, including as principal private secretary to the chancellor, to the prime minister, and budget director. She has also worked as a technical adviser to the International Monetary Fund.

Strike action will have hit UK GDP in December, points out Sam Miley, senior economist at the Centre for Economics and Business Research.

Miley also flags that manufacturing contracted (by 0.5%) in November, while construction stalled.

“The UK economy unexpectedly grew in November, driven by an expansion in the services sector. Beneath the headline growth, there remains evidence of various headwinds impacting the economy, with a sharp monthly decline in manufacturing output being accompanied by a flatlining construction sector.

Despite monthly growth in both October and November, a quarterly contraction in Q4 is still a possibility. In addition to continuing consumer and business pressures, the wave of industrial action witnessed at the end of 2022 will also have a downward effect on December’s GDP figures.”

NIESR, the economic thinktank, predict the UK economy shrank slightly in December, but not by enough to pull the economy into a recession.