By William Schomberg and Andy Bruce
LONDON (Reuters) - Britain's economy avoided a recession as it grew in the final months of 2022, according to official data which showed a boost to households' finances from state energy bill subsidies but falling investment by businesses.
With the economy still hobbled by high inflation and worries about a weak growth outlook, gross domestic product (GDP) increased by 0.1% between October and December after a preliminary estimate of no growth.
GDP in the third quarter was also revised to show a 0.1% contraction, a smaller fall than initially thought, the Office for National Statistics (ONS) said on Friday.
Two consecutive quarters of contraction would have represented a recession.
Despite the improvement, British economic output remained 0.6% below its level of late 2019, the only G7 economy not to have recovered from the COVID-19 pandemic.
GRAPHIC: UK economy lags behind rest of G7 in post-pandemic recovery https://www.reuters.com/graphics/BRITAIN-ECONOMY/gkvlwbolmpb/UK_economy_GDP.png
"The latest release takes the UK a little further away from the recessionary danger zone although the report does not change the overall picture that the economy's performance was lacklustre over the second half of 2022 as the cost of living crisis hit hard," Investec economist Philip Shaw said.
The International Monetary Fund forecast in January that Britain would be the only Group of Seven major advanced economy to shrink in 2023, in large part because of an inflation rate that remains above 10%.
Since then, a string of economic data has come in stronger than expected by analysts.
Ruth Gregory at Capital Economics said Friday's figures showed high inflation had taken a slightly smaller toll than previously thought.
"But with around two-thirds of the drag on real activity from higher rates yet to be felt, we still think the economy will slip into a recession this year," she said.
House prices slid in March at the fastest annual rate since the financial crisis, mortgage lender Nationwide said.
The Bank of England (BoE) last week raised interest rates for the 11th consecutive meeting and investors are split on the possibility of another increase in May.
Britain's dominant services sector rose by 0.1%, boosted by a nearly 11% jump for travel agents, echoing other data which has pointed to a surge in demand for holidays.
Manufacturing grew by 0.5%, driven by the often erratic pharmaceutical sector, and construction grew by 1.3%.
Individuals' savings were boosted by the government's energy bill support scheme and households' disposable income increased by 1.3% after four consecutive quarters of negative growth.