The UK economy recovered from the pandemic faster than previously thought, revisions from the Office for National Statistics (ONS) showed.
Gross domestic product (GDP) was estimated to be 1.8% above pre-pandemic levels in the second quarter of 2023 – previously the ONS thought GDP was 0.2% smaller than it was pre-pandemic.
The figures show the UK rebounded faster than France and Germany. The revisions were larger than normal due to the “practical challenges of estimating GDP” throughout the pandemic, the ONS said.
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“It has been a shock turn of events that the narrative around the UK’s sluggish post covid recovery has been completely flipped on its head because of statistical revisions,” said Victoria Scholar, head of investment at interactive investor.
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“Despite this, the pound is on track for its worst month in a year since the mini-Budget turmoil in 2022,” she adds. “The depreciation has been driven by demand for the dollar amid expectations of higher for longer interest rates as well as risk-off investor appetite. There are also growing concerns about a risk of a UK economic slowdown or even a recession in the months ahead, weighing on sterling, as elevated inflation and higher interest rates take their toll.”
UK GDP grew in the second quarter
UK GDP is estimated to have grown by 0.2% in the three months from April to June. The ONS also revised GDP growth for the first quarter, showing the economy grew by 0.3% instead of 0.1%.
Growth was largely driven by an increase in the production sector thanks to falling input prices, which “relieved pressure on manufacturers”, says Scholar.
“While momentum is overall positive, these levels of growth aren’t exactly shooting the lights out,” says Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. “Higher interest rates are playing their part in turning the nation’s economic thermostat down and this will play a key role in upcoming interest rate decisions.”
Where is the UK economy headed?
"We know that the British economy recovered faster from the pandemic than previously thought, and today's data once again proves the doubters wrong,” says Jeremy Hunt.
“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 long term," the Chancellor adds.
“Economist Jake Finney at PwC, however, is less optimistic about the future. "Unfortunately, this snapshot of economic data is not significant enough to change the overall picture of a flatlining economy," he says.
Ruth Gregory, deputy chief UK Economist at Capital Economics, shares a similar lack of optimism. "Overall, today's release changes very little. The data leaves the economy still only 0.6% above its level a year ago," she says.
"It 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 impact of higher interest rates has been felt," she adds.
