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The UK economy has bounced back from the Covid-19 pandemic much faster than previously estimated, according to new official figures that show Britain is no longer the worst performer in the G7.
In the three months to June, gross domestic product was 1.8 per cent above its pre-pandemic level in the final three months of 2019, the Office for National Statistics said on Friday. Previously, the statistics agency estimated that GDP in Q2 2023 was 0.2 per cent below its Q4 2019 level.
Until relatively recently, the UK was thought to be the only G7 economy not to have returned to pre-pandemic levels. The new figures give Britain a similar performance to France and a stronger rebound than Germany, the eurozone’s largest economy, but its recovery remains weaker than other countries.
The bulk of the change came from the large revisions announced at the start of September for the period up to 2021, when the ONS added almost 2 per cent to the size of the UK economy. There were smaller changes for 2022 and the first two quarters of 2023.
Chancellor Jeremy Hunt 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.”
“The best way to continue this growth is to stick to our plan to halve inflation this year,” he added.
The ONS revisions will have to be taken into account by the Office for Budget Responsibility, the fiscal watchdog, as it prepares forecasts to accompany Hunt’s Autumn Statement on November 22.
However, economists pointed out that the UK’s performance was still quite poor relative to other leading economies.
Ruth Gregory, economist at the consultancy Capital Economics, said the data did “not change the big picture that the economy has lagged behind all other G7 countries, aside from Germany and France, since the pandemic. And that’s before the full drag from higher interest rates has been felt.”
She predicted that higher interest rates — now at 5.25 per cent — would trigger a mild recession involving a 0.5 per cent fall in GDP in the coming quarters.
Samuel Tombs, economist at the consultancy Pantheon Macroeconomics, said: “A stable picture might take some time to emerge, given that statistical authorities in other countries are revising their data too.”
GDP is now estimated to have increased by 4.3 per cent in 2022, up from previous estimates of 4.1 per cent.
Growth between the first and the second quarters of 2023 was left unrevised at 0.2 per cent, but the ONS revised upwards the expansion of output in Q1 to 0.3 per cent from 0.1 per cent, as previously estimated.
Friday’s data also showed that household spending grew by 0.5 per cent in the second quarter of 2023, which some economists suggested was a signal that the cost of living crisis is coming to an end.
Household disposable income rose by 1.2 per cent in three months to June, supported by a recovery in real wages and the uprating of the value of benefits to take account of last year’s high inflation rate.
That helped boost the average percentage of disposable income saved by households to 9.1 per cent in the second quarter, up from 7.9 per cent in the previous three months.
Martin Beck, chief economic adviser to the EY ITEM Club, a consultancy, said that while the data showed a much stronger economic recovery in 2021 than earlier estimates, it largely confirmed that the UK had seen negligible economic growth for the past two years.
“Sluggishness will characterise activity for the near future,” he said.
Source: Economy - ft.com
