UK economy bigger than before the pandemic, ONS admits

Boost for Britain as revised figures add almost 2pc to size of economy in 2021

The UK economy shrank less and bounced back faster during the pandemic, official figures show, after the Office for National Statistics (ONS) admitted its previous assumptions were too gloomy.

The revised figures add nearly 2pc to the size of the economy as of the end of 2021, meaning Britain recovered to its pre-pandemic size almost two years ago.

The ONS previously said the economy was still 1.2pc smaller than its pre-lockdown size at the time.

However, GDP is now believed to have been 0.6pc above pre-pandemic in the final three months of 2021, dispelling the notion that the UK is the only G7 country that had failed to bounce back from Covid.

Assuming that data in 2022 and 2023 are not heavily revised, it suggests the economy is now much bigger than its pre-Covid levels – not 0.2pc smaller as current figures suggest.

Chancellor Jeremy Hunt said: “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.

“There are many battles still to win, most of all against inflation so we can ease cost of living pressures on families. But if we stick to the plan we can look forward to healthy growth which according to the IMF will be faster than Germany, France and Italy in the long term.”

Economist Julian Jessop said that while the impact was largely symbolic two years later, the revisions showed that “Brexit Britain is no longer the outlier people thought it was”.

He said: “Bigger revisions are not a surprise because of the uncertainty created by the impact of Covid. But the good news is that it’s upward revisions rather than down.

“Unless there is now a massive downward revision in 2022, which there won’t be, the UK has just leapt up the G7 league table for growth.

“Symbolically, I think it is significant because it means that people can no longer say that the UK is the weakest of the world’s major economies. That’s no longer true when we’re somewhere in the middle of the pack rather than being at the bottom of the table.”

Mr Jessop said that it was possible other countries would also revise their pandemic growth figures, making it difficult to predict exactly how the UK compares with its peers.

The ONS said the economy shrank by less than expected in 2020, shrinking by 10.4pc rather than 11pc.

In 2021, the stats body now estimates the economy bounced back by 8.7pc, rather than an earlier estimate of 7.6pc growth.

Ruth Gregory of Capital Economics said the revisions suggested the UK economy has expanded by 1.5pc compared with before the pandemic rather than being 0.2pc smaller. 

This would put the UK ahead of Germany, which has only grown 0.2pc, and just behind France at 1.7pc to the second lowest rung among the G7 countries where data is available. 

Ms Gregory said the figures suggested “the UK economy is no longer a global outlier and it is no longer at the bottom of the G7 pack.”

George Buckley of Nomura said the revised data could help explain why the Bank of England initially underestimated inflation, as consumer demand was stronger than originally suggested. 

He said the stronger-than-expected growth could bolster the case for interest rates staying higher for longer as policymakers may decide that “inflation might be a bit stickier going forward”. 

Mr Buckley said: “It could justify the notion of what the market is expecting, which is another couple of rate hikes.”

The Bank of England has raised interest rates 14 times since December 2021, lifting them from 0.1pc to 5.25pc. 

Sir Charlie Bean, the former deputy governor for monetary policy at the Bank, said the revisions were too small to have a meaningful impact on future rate decisions.

But it suggested “maybe the scarring wasn’t quite as bad as we thought it might be” to the economy from Covid, he said.

Sir Charlie added: “What’s changed by this upward revision into the level of GDP is it implies productivity growth was a bit faster than we thought.”

It came as Moody’s warned that the UK will have the highest inflation rate in the G7 until at least the end of 2024.

British consumer prices are predicted to rise by a further 3.9pc next year according to the ratings agency, even as interest rates have risen at the fastest pace since the 1980s.

This is similar to Italy and far higher than in other large advanced economies, with inflation in Germany expected to average 3pc next year, 2.5pc in the US and 2.1pc in France.

The UK currently has the highest rate of inflation among G7 countries at 6.8pc. On average across 2023, it is predicted to remain far higher than in peer countries at 7.8pc.