According to the revised economic figures, the UK economy has shown better performance in the post Covid era, as it unexpectedly grew faster than previously thought. The growth rate has been faster than those of Germany and France.
According to the figures shared by the Office for National Statistics, the economy of the UK was 1.8% larger in the quarter ending June 2023, than it was in the final quarter of 2019 before the start of the pandemic.
This shows a big upward revision from the recent ONS estimate made in August, that the economy is still slightly smaller than at the start of the pandemic. It had also placed the UK’s economy at the bottom of the list among developed economies.
A higher estimate was expected after ONS published initial figures, suggesting that the economy has already surpassed its pre-covid levels by 0.6%.
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After the Brexit
UK’s relative economic performance had been in much political debate since its exclusion from the European Union and the COVID-19, aggravated to higher levels with an election next year. Scoring political points on the recent data, Prime Minister Rishi Sunak said that “People doubted the strength of the UK economy, but today’s data will prove them wrong.”
Although the economy of UK grew by 1.8% in the post Covid-19 era, and is greater than other advanced European economies like France’s 1.7% and Germany’s 0.2%. Still, it is far behind than most of the developed economies, like the USA, Japan, Canada, or Italy.
The recent economic figures aren’t much inspiring when compared with the historical data. With many households being severely affected by the high inflation which accelerated after the Russia invasion of Ukraine in 2022.
Deputy chief UK economist at Capital Economics Ruth Gregory said that, “the recent data does not change the big picture that the economy of UK has lagged behind all other G7 countries except Germany and France since the pandemic. And that’s before the full drag from higher interest rates has been felt.
Just to give an overview, Britain’s central bank has raised interest rates 14 times since Dec 2021 to control the inflation, before maintaining it at its highest levels since 2008.
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Extensive revisions in the economy
The recent figures are yet to be considered final with other countries preparing to revise their figures too. The upward revisions are more focused in 2020 and 2021, during the peak of COVID-19.
GDP growth was revised from 7.6% to 8.7% in 2021, the first year after lockdowns were lifted. Whereas, the size of a historic slump witnessed in 2020 was reduced from 11% to 10.4%. As per the ONS statement, the revisions made in 2020 and 2021 data reflected better estimates of the quantity of stock held by the businesses, health sector output and increased margins in the retail sector.
It also mentioned that these revisions were in line with the regional trend as other European countries like Spain, Italy, and Netherlands also revised their economic outputs for 2021. Moreover, the British GDP in 2023 Q2 was confirmed 0.2% higher than the previous quarter, which was also revised from 0.1% to 0.3% growth rate.
The households savings ratio also increased from 7.9% to 9.1% which contrasted with the trend in United States of America, where people saved less money.
Capital’s Gregory while warning against higher interest rates risking the economy into recession said that, “the economy was a bit more resilient in the first half of this year than we previously thought. But other indicators suggest this is now fading.”
One of those indicators is the soaring current account deficit (CAD), which rose unexpectedly to 25.3 billion pounds ($31 billion) in the second quarter, equivalent to 3.7% of the GDP. While the deficit for the first quarter was also revised up by 5 billion pounds to 15.1 billion pounds.
($1 = 0.8162 pounds)