Revisions show UK economy no longer the post-pandemic laggard

© Reuters. FILE PHOTO: A view of the financial district in London, Britain. September 23, 2023. REUTERS/Matthew Childs/file photo

By David Milliken and Andy Bruce

LONDON (Reuters) - Britain's economic performance since the start of the COVID-19 pandemic has been much stronger than previously thought, with faster growth than Germany or France, according to revisions to official data released on Friday.

Britain's economy in the three months to the end of June 2023 was 1.8% larger than in the final quarter of 2019, the last full quarter before the start of the COVID-19 pandemic, the Office for National Statistics said.

This represented a big upward revision from the most recent previous ONS estimate, made on Aug. 11, that the economy was still 0.2% smaller than before the pandemic, which had placed it at the bottom of the table among major advanced economies.

An increased estimate of the size of Britain's economy had been widely expected, after the ONS published preliminary revisions on Sept. 1 suggesting the economy was already 0.6% larger than its pre-pandemic size in the final quarter of 2021.

Britain's relative economic performance since the pandemic and its departure from the European Union has been a focus of political debate, especially with a national election likely next year.

"People doubted the strength of the UK economy - today's data proves them wrong," Prime Minister Rishi Sunak said on social media as he prepared to head to his Conservative Party's annual conference.

Britain's gross domestic product (GDP) growth of 1.8% over the period exceeds growth of 1.7% in France and 0.2% in Germany, but trails far behind the 6.1% expansion seen in the United States and is also weaker than in Japan, Italy or Canada.

Recent growth has been lacklustre by historical standards, and many households have been severely affected by the soaring cost of living which accelerated after Russia's invasion of Ukraine in February 2022.

"The data ... does not change the big picture that the economy has lagged behind all other G7 countries aside from Germany and France since the pandemic. And that's before the full drag from higher interest rates has been felt," said Ruth Gregory, deputy chief UK economist at Capital Economics.

The Bank of England has raised interest rates 14 times since December 2021 to tame soaring inflation, before keeping them unchanged last week at a 15-year high of 5.25%.

"If the UK economy has been running hotter than we thought, it would help to explain some of the persistence in inflation and the tightness of the labour market," said Thomas Pugh, an economist at accountancy firm RSM UK.

WIDESPREAD REVISIONS

Friday's figures are unlikely to be the final word on the topic with other countries also set to revise their data.

The upward revisions were concentrated in 2020 and 2021, during the height of the pandemic and immediate aftermath.

Growth in 2021 was revised to 8.7% from 7.6%, while the size of 2020's historic slump was reduced to 10.4% from 11.0%, in line with preliminary guidance on Sept. 1. Growth in 2022 was revised up to 4.3% from 4.1%.

The ONS said the revisions in 2020 and 2021 reflected better estimates of the volume of stocks held by businesses, as well as the margins made by retailers and costs and output in the healthcare sector.

Other European countries, including Italy, Spain and the Netherlands, had made similar upward revisions to economic output for 2021, it added.

British gross domestic product in the second quarter of 2023 was confirmed at 0.2% higher than the quarter before, in line with a previous estimate, while first-quarter growth was revised up to 0.3% from 0.1%.

The household savings ratio in the second quarter rose to 9.1% from 7.9% earlier in the year, which economists said contrasted with the United States, where households saved less.

"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," Capital's Gregory said, warning higher interest rates risked tipping the economy into recession.

(This story has been refiled to add a dropped word in the headline)

Britain's current account deficit soared unexpectedly to 25.3 billion pounds ($31.0 billion) in the second quarter and the first-quarter deficit was revised up by almost 5 billion pounds to 15.1 billion.

The second-quarter deficit was equivalent to 3.7% of GDP, the highest in a year.

($1 = 0.8162 pounds)