How did the economy shape up at the end of 2022?

Between October and December, no growth was recorded. Broken down by month, GDP is estimated to have fallen by 0.5% in December, following an increase of 0.5% in October and 0.1% in November.  

Additionally, the level of quarterly GDP in the final quarter of 2022 is now 0.8% below its pre-Covid level – however GDP is estimated to have increased by four percent in 2022.  

Nominal GDP
As for nominal GDP – given in current prices and has not been adjusted for inflation – this rose by 1.3%, and increased by seven percent when compared to the same quarter in 2021. This quarterly rise was driven by growth in the gross operating surplus and compensation of employees, while taxes less subsidies detracted from growth.  

Compensation of employees increased by 1.1% in the final quarter of 2022 – with this being driven by a rise in wages and salaries of 1.7%, partially offset by a two percent fall in employers’ social contributions.  

Meanwhile, early estimates show taxes less subsidies fell by 22.5% – driven by a large increase in subsidies because of the energy price guarantee and energy bill relief schemes. As for the total gross operating surplus (GOS) of corporations, this increased by 15.2% – however, excluding the alignment adjustment, corporations’ GOS increased by 6.2%.  

Output 
Looking at output when broken down by sector, services were flat, production fell by 0.2% while construction rose by 0.3%. 

The flat level of services output growth is a slowdown from the 0.2% increase seen in the third quarter of 2022. The ONS also found there was a mixed performance for the service sub sectors, with the growth seen in six out of the 14 sub sectors being offset by falls in eight.  

In terms of a positive contribution to growth, the largest was driven from administrative and support service activities – with this particularly being seen by travel agents, which increased by 14.8% between the third and fourth quarters of 2022.  

There was also an increase in the wholesale and retail trade sectors. Although within this, retail trade declined over this period – with those in the sector saying consumers are cutting back on spending because of increased prices and affordability concerns.  

This was, however, largely offset by declines in education – 1.6% – and transportation and storage output – 2.4%. Within the transportation and storage sub sector, there were falls from postal courier services as well as rail transport, both of which saw strikes taking place across this period.  

Looking at the figures for the whole of 2022 in the services sector, output increased by 5.5%.  

Turning to the drop in production output, this was driven by declines in electricity, gas, steam and air conditioning supply – 1.3% – and mining and quarrying – 1.6%.  

Manufacturing, meanwhile, remained broadly flat in the final quarter of 2022 – with there being declines in 10 out of the 13 sub-sectors, with the largest negative contributions being from those that manufacture chemicals and chemical products, and basic metals and metal products.  

These were offset by increases in the manufacture of basic pharmaceutical products and preparations, and the manufacture of transport equipment.  

Overall, in 2022 the production sector saw a 3.6% decline in output.  

Finally, reflecting on the 0.3% increase in construction output – which is a slowing when compared to the first half of this year – the main positive driver for this came from infrastructure, which grew by 6.5%. This is the first positive quarterly growth in infrastructure since the third quarter of 2021 and is the strongest since the second quarter of 2021.  

In contrast, private housing – both in new work and in repairs and maintenance (R&M) – was the main negative contributor towards this, falling by 3.2% and 3.5% respectively. In private housing R&M, this is the first quarterly fall since the second quarter of 2022 and – according the ONS – may reflect the cost-of-living challenges and lack of demand and funds in this area.  

Consumption 
Private consumption saw a modest 0.1% increase in the fourth quarter of 2022 – while there was also higher business government spending. However, the ONS says early estimates show businesses were de-stocking their levels of inventories in the final quarter of the year, while there was a decline in the volume of net trade with a fall in exports.

There was also a modest increase in real household expenditure of 0.1%, following a 0.4% contraction in the previous quarter – as real household incomes have been squeezed by higher inflation over the second half of 2022.  

Despite this, there were continued declines in household goods and services, food and non-alcoholic drinks, and recreation and culture. However, in current price terms, household expenditure rose by 1.3% on the quarter prior, as recent inflationary pressures increased the nominal value – with the implied price of household expenditure increased by 9.1% when compared to the same period in 2021.  

As for real government consumption expenditure, this increased by 0.8% – including a pick-up in health volumes overall in the quarter. This reflected an increase in the volume of spending on public administration, defence and health.  

Looking more specifically at health volumes, this reflected some effects of the higher number of Covid-19 vaccinations – including the impact of the autumn booster campaign. However, there was a fall in December 2022 – including a large fall in GP services and a second consecutive fall in the NHS test and trace, and vaccine programmes.  

Alongside this, there was also a fall in education volumes – reflecting lower attendance throughout the quarter.