The UK economy recovered faster from the pandemic than previously thought, according to newly revised data, providing Prime Minister Rishi Sunak a needed boost days before he outlines his plan to stay in power.
(Bloomberg) — The UK economy recovered faster from the pandemic than previously thought, according to newly revised data, providing Prime Minister Rishi Sunak a needed boost days before he outlines his plan to stay in power.
The economy was 2% bigger by the end of June compared with past estimates, the Office for National Statistics said Friday. That means the country has recovered all the output lost in the early phase of the pandemic, with gross domestic product 1.8% above pre-Covid levels.
The upward revision — the second announced by ONS this month — undercuts a key criticism of the Conservative government’s record as it careened through a series of leadership changes and fiscal policy reversals. Britain’s recovery no longer ranks worst among the Group of Seven nations, with growth since the end of 2019 exceeding that of Germany and France and trailing closely behind Italy.
The pound rose 0.5% to around $1.2272 following the release, the strongest level since Sept. 22. The move came a weaker greenback lifted currencies across the board. It was little changed against the euro.
For Sunak, the figures are well timed, with the Conservatives heading for their annual conference Sunday in Manchester, where they hope to lay out a plan to reverse a double-digit deficit in the polls against the opposition Labour Party. Chancellor of the Exchequer Jeremy Hunt seized on the data as evidence of resilience in the face of the worst cost-of-living crisis in decades.
“Data out today once again proves the doubters wrong,” Hunt said in a statement. “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.”
UK growth for last year as a whole was also revised up to 4.3% from 4.1%. The bulk of the overall improvement was driven by upward revisions in 2021, as the UK bounced back from the deep Covid recession. Growth was 8.7% in 2021, up from an earlier estimate of 7.6%.
The UK’s relative performance may still change. Britain is one of the first countries in the world to review its accounts using new approaches. When others follow suit, the G-7 league table could get rewritten again.
What Bloomberg Economics Says …
“The economy may have carried more momentum into the second half of the year than previously thought, reducing the risk it fell into recession over the summer. Still, we’re skeptical Britain will be able to avoid a downturn altogether — more timely measures of activity have soured of late, leaving us comfortable with our view that a mild downturn will begin at the back end of the year.”
—Dan Hanson and Ana Andrade, Bloomberg Economics. Click for the REACT.
Still, it’s unclear how much a correction of the economic narrative over the past three years will help Sunak going into an election expected to be held in late 2024. Indicators have darkened in recent weeks, prompting more analysts to forecast a recession and contributing to the Bank of England’s decision last week to pause a run of 14 consecutive interest rate increases.
“The key thing to remember is that it’s the official figures that have been revised, not voters’ actual lived experience of the economy,” said Adam Drummond, head of political and social research at polling firm Opinium. “That experience is already reflected in how they answer polls, in terms of who they’d vote for and who they trust on the economy and Labour lead on both measures.”
The GDP revisions through the second quarter bring the national accounts up to date, showing how the economy fared during a period of rising inflation and interest rates. On Sept. 1, the ONS announced revisions to the end of 2021 that partially rewrote the narrative of the pandemic. Using new methodologies, statisticians found the health-care sector in particular produced more than previous thought.
Second quarter figures showed:
- The economy grew 0.2%, unrevised from the previous estimate, as activity was held back by widespread public-sector strikes over pay and the cost-of-living squeeze.
- Real disposable incomes rose 1.2%, with wages and benefits rising faster than prices, easing a brutal cost-of-living squeeze. The ONS cited public-sector pay settlements as a cause.
- The saving ratio, the proportion of income left over after spending on goods and services, rose to 9.1% from 7.9%.
- The current-account deficit widened to £25.3 billion ($31 billion) from a revised £15.2 billion.
The changes since 2021 help to explain why the BOE has struggled with inflation: the economy has been running hot. They also suggest British workers were more productive than first reckoned. For the public finances and fiscal policy, there may be few implications as the figures say little about how well the economy will perform and generate tax revenue in the future.
Despite the upgrade, Britain’s performance during 2022 and the first half of this year, remains lackluster, with GDP growing 1.2% during that period. Every other G-7 country except Germany posted faster growth over those 18 months.
“Unfortunately this snapshot of economic data is not significant enough to change the overall picture of a flatlining economy,” said Jake Finney, an economist at PwC. “If anything, the GDP data revisions may marginally dampen the UK’s growth prospects for 2023 and 2024 as they reduce the potential for bounce-back growth.”
–With assistance from Lucy White, Irina Anghel, Constantine Courcoulas and Emily Ashton.
(Updates with pollster comment in 10th paragraph.)
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