New revised figures from the ONS suggest that the UK economy has recovered from the Covid pandemic stronger than previously conceived. In the new publication by the Office of National Statistics (ONS) entitled Impact of Blue Book 2023 Changes on Gross Domestic Product, the faults of the British economy are challenged and it shows new data on the UK GDP paralleled to the pandemic.
The report states that the UK economy contracted by 10.4% in the first pandemic year of 2020, less than the previously estimated 11% contraction. It has also said that UK GDP grew by 8.7% in 2021, better than the previously reported growth of 7.6%. The implication of these two revisions together is that, at the end of 2021, the UK economy was 0.6% bigger than it was going into the pandemic, rather than being 1.2% smaller as was previously estimated.
The ONS said that the revisions have come as a result of “richer data from annual surveys and administrative data,” which allows the organization to measure costs incurred by businesses directly, which makes the process more accurate. The ONS also claims that it is able to adjust for prices (inflation and deflation) with more accuracy. The impact of this is particularly evident in the services sector which comprises ⅘ of the UK economy. The availability of more up-to-date information from HMRC has allowed for a more detailed understanding of UK worker income in 2021-22, which resulted in the services sector as a whole being estimated as growing 10.9% in 2021, ahead of the previous estimate of 7%. This data proves that the UK bounced back from the pandemic relatively fast, especially given the damage it did to all sectors of the economy.
Underreporting of the services sector is a long-standing issue that the ONS faced and by using the new ‘supply and use tables’ framework, it has aimed to better represent value added. This was observable in the fact that wholesale and retail sectors had streamlined their cost bases in the Covid period and thus had produced more value than previously estimated. As a result, in general, services contribution to economic growth has been revised up, while manufacturing, construction, agriculture and oil and gas extraction have fallen. However, it must be noted that last year’s ONS data revisions were almost as large and went in the opposite direction and thus the aggregate changes over two years are much smaller. Furthermore, revised statistics covering more recent quarters will not be published until 30 September.
UK Chancellor Jeremy Hunt remarked on the revised figures:
“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 proven wrong”.
One of the most key consequences of this revision has been that it has just countered the entire narrative surrounding the state of the UK economy post-Covid. The narrative that had emerged had resulted in significant detriment to investor and business confidence in the UK, fueling already chronic underinvestment and further muddying the economic direction that has been undertaken during the political instability that has ensued post Brexit and Covid. As a result of these revisions, companies and the government may need to revise their own undertakings in the new macro picture.
Written by Sarp Basaran
