The UK economy rebounded from the impact of the Covid-19 pandemic faster than initially estimated. Newly revised figures show a significant 1.7% boost to the country’s GDP in the fourth quarter of 2021.
Yet, what this implies for the present state and future trajectory of the economy remains uncertain. This uncertainty arises because revised statistics covering more recent quarters won’t be available until September 30.
UK economic performance at par or better than Germany
New data has revealed that the UK’s economy in the final three months of 2021 was actually 0.6% larger compared to its pre-pandemic levels, which contradicts the earlier estimate of a 1.2% contraction. The government has used this revised information to assert that those who have been negative about the British economy have been proven wrong.
The Office for National Statistics (ONS) attributes these changes primarily to having more comprehensive data from its annual survey. Furthermore, the updated figures indicate that the economic downturn during the 2020 pandemic lockdown was slightly less severe, with a 10.4% decline instead of the previously reported 11%. Additionally, the recovery in 2021 was faster, with an 8.7% growth rate rather than the earlier 7.6%.
Recently, the ONS estimated that between April and June of this year, the UK economy was still 0.2% smaller than it was in the final three months of 2019, which was the last full quarter before the pandemic began in March 2020. This placed the UK at the bottom among the largest G7 economies in terms of its recovery from the pandemic.
However, this upward revision could mean that the UK’s economic performance is now on par with or possibly better than Germany, and is trailing just slightly behind France and Italy when the ONS releases its latest figures.
Chancellor Jeremy Hunt commented that the fact that the UK recovered from the pandemic much faster than thought shows that once again those determined to talk down the British economy have been proved wrong.
UK economy has been making progress since 2021
The significant difference in the UK economy’s performance at the end of 2021, where it shrank and then grew substantially, should be seen in the context of the extreme swings caused by the pandemic. The ONS cited several reasons for this change, including companies stockpiling unsold goods during the pandemic instead of depleting their inventories. Additionally, the ONS adjusted its calculations for the output of health services, particularly the NHS.
As a result of these revisions, by 2022, the UK was no longer an outlier within the G7 nations in terms of the economic impact of the pandemic. In fact, the UK’s economic downturn was in line with other major European countries. It’s important to note that only the UK and the US have made revisions to their 2021 economic data, while countries like Germany, France, and Italy have not. If they were to do so, it could reveal that their economic performance during that time was either better or worse than initially thought.
Nevertheless, the ONS’s revision provides valuable insights into the lasting effects of the pandemic on the UK economy. It shows that the impact was less severe than originally feared. However, it doesn’t offer much insight into the current state of the economy, which has faced new challenges such as energy price shocks and rising interest rates, all of which occurred after this revision.
A separate Purchasing Managers’ Index (PMI) for the eurozone revealed that the challenges experienced by industry were not unique to the UK. Although the August reading of 43.5 was somewhat less pessimistic than July’s 42.7, it still indicated difficulties.
Fhaheen Khan, a senior economist at the manufacturers’ organization Make UK, noted that the data indicated a slowdown in manufacturing production due to declining demand, and factors like high inflation and higher interest rates were affecting consumer spending negatively.
The Nationwide reported that the average price of a UK home was now more than £14,500 lower than in August 2022. The housing market’s weakness was expected, given the sharp increase in mortgage servicing costs. Robert Gardner, the lender’s chief economist, highlighted that the softening of the housing market was unsurprising, as borrowing costs had risen significantly in recent months, leading to a notable drop in housing market activity compared to pre-pandemic levels.
