The UK economy is far bigger than before the Covid-19 crisis than first thought, with the country’s growth outpacing Germany and France, new revisions to official data this morning revealed.
Gross domestic product is now estimated to be 1.8 per cent larger compared with the final months of 2019, just before the pandemic swept through the country, according to the Office for National Statistics (ONS). The revised figures mean that the economy has added about an extra £10 billion in output since the final quarter of 2019.
Under its initial estimates, the statistics agency thought the economy was 0.2 per cent below its pre-pandemic levels. The new figures come after the ONS said earlier this month, in a re-estimation of output, that Britain’s GDP reached its pre-Covid size in the final months of 2021. It was still thought to be lower only several weeks ago.
That change meant the country lost its position as the worst performing economy in the G7, a title that has been handed over to Germany, whose economy is thought to be about the same size as before the pandemic. It also means that the UK’s performance has outpaced that of France, which is estimated to be 1.7 per cent larger.
Jeremy Hunt, the chancellor, said: “We know that the British economy recovered faster from the pandemic than anyone previously thought and data out today once again proves the doubters wrong. Since 2020 we have grown faster than France and Germany.
“The best way to continue this growth is to stick to our plan to halve inflation this year, with the IMF forecasting that we will grow more than Germany, France and Italy in the longer term.”
The revised figures will provide a boost for prime minister Rishi Sunak heading into the Conservative Party conference, which kicks off in Manchester on Sunday.
Samuel Tombs, chief UK economist at the Pantheon Macroeconomics, said that the changes mean that the UK “no longer is the G7’s straggler”.
Today’s fresh calculation was contained within final estimates for second-quarter GDP growth this year, which was unchanged at 0.2 per cent, in line with analysts’ expectations. The ONS raised its first-quarter growth estimate, however, to 0.3 per cent from 0.1 per cent.
Grant Fitzner, chief economist at the ONS, said: “Today’s latest figures show that the GDP growth rate is almost unrevised over the last 18 months. Our new estimates indicate a stronger performance for professional and scientific businesses due to improved data sources.”
Access to richer information led the ONS to raise its estimation of output during the pandemic, with consumer spending and healthcare output receiving massive upgrades.
Analysts at Nomura, a Japanese investment bank, said: “Pretty much everything has been revised up in terms of where the economy stands relative to before the pandemic.”
Before the revisions the ONS had long held the view that GDP had yet to recover to its pre-Covid level. This meant that investors have been basing their decisions on data that was overstating the UK economy’s underperformance, suggesting that UK assets had weakened more than merited.
However, most of the ONS’s changes were to economic data before 2022, meaning the statistics agency did not re-examine a period in which the UK economy has grappled with sky high inflation and aggressive interest rate rises by the Bank of England.
More recent evidence suggests that the economy is creaking under the weight of tighter monetary policy. Purchasing managers’ indexes flagged businesses are laying off staff at the fastest pace outside of the pandemic since 2009 and official GDP estimates showed the economy contracted 0.5 per cent in July.
Bank governor Andrew Bailey and the rest of the rate-setting monetary policy committee have raised the UK’s base rate to a 15-year high of 5.25 per cent. Weakening economic activity and a surprise drop in inflation to 6.7 per cent convinced the group to hold rates last week for the first time since November 2021.
Ruth Gregory, deputy chief UK economist at the consultancy Capital Economics, said: “Higher interest rates will trigger a mild recession involving a 0.5 per cent fall in GDP in the coming quarters.”
