The UK actually fared much better after COVID than first thought – here’s why it matters

Published

2 years ago

September 1, 2023

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Comparing the UK economy with its pre-pandemic size has become an almost totemic way of highlighting its sluggish performance post-COVID.

It has certainly been a gift for Opposition politicians and in particular when – in September last year – the Office for National Statistics (ONS) produced evidence that the UK was the only economy in the G7 group that remained smaller than it was in February 2020.

However, today brought news that the UK economy actually fared better in the post-COVID period than previously thought.

The ONS unveiled a series of revisions for past GDP growth – affecting both 2020 and 2021.

It said that the UK economy contracted by 10.4% in the main pandemic year of 2020 – less worse than the 11% contraction previously reported.

And it said UK GDP grew by 8.7% in 2021 – considerably better than the previously reported growth of 7.6%.

Put together, it means that at the end of 2021 – rather than being 1.2% smaller than it was going into the pandemic as previously reported – the UK economy was actually 0.6% bigger.

Some will say that this is all just rear-view mirror stuff and does not really matter.

But it does.

Even in its most recent estimates for quarterly growth, the ONS was suggesting that, during the three months to the end of June, the UK economy remained 0.2% smaller than it was during the final three months of 2019, the last full quarter before the pandemic struck.

Carry these revisions across to the latest data though, and it means that, rather than being at the bottom of the G7, the UK’s economic recovery post-pandemic was well ahead of Germany and not far behind those achieved by France and Italy.

The Treasury was also quick to point out that, as of the end of 2021, the UK’s recovery trailed only those of the US and Canada in the G7.

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.”

The ONS explained the rather dramatic upward revision thus: “These revisions are mainly because we have richer data from our annual surveys and administrative data, we are now able to measure costs incurred by businesses [intermediate consumption] directly and we can adjust for prices [deflation] at a far more detailed level.”

Part of the revision can be explained by the fact that the ONS now has a more detailed understanding of how much people were being paid in the 2021-22 financial year following the availability of more up-to-date information from HM Revenue & Customs. More up-to-date information on household spending during 2021, for example on telecoms services, has also been incorporated into the assessment of GDP.

Put together, these led to some pretty dramatic upgrades in parts of the services sector, which makes up four-fifths of UK GDP. The ONS now thinks the services sector as a whole grew by 10.9% in 2021, way ahead of the previous estimate of 7%, which is a pretty extraordinary upward revision.

The biggest contributors to that, according to the ONS, was from the wholesale and retail trade, and repairs to cars and motorcycles in particular.

Another contributor was accommodation and food services, which is now reckoned to have grown by 31.3% in 2021, up from the previous estimate of 30.9%.

Clearly the rush among Britons to eat out and stay in hotels after lockdowns ended was even bigger than previously thought.

Other sectors where activity was stronger than previously assumed were professional scientific and technical activities and healthcare services.

The commercial property sector, previously thought to have contracted during the year in question, is also now reckoned to have enjoyed growth.

These revisions are really important in terms of how we view the UK’s economic performance.

As Simon French, the chief economist and head of research at the investment bank Panmure Gordon was quick to note, the entire UK economic narrative, post-pandemic, has just been revised away. All those headlines about the UK economy not being back at pre-COVID levels, or bottom of the G7, are now obsolete.

He added: “But as a macro guy who has had to talk to international investors [about] why gilts and UK equities do or do not deserve [to trade at] a discount, this has cast huge doubt on recent investor conclusions.

“I may be biased but this deserves to lead every UK economic and business story today – to provide symmetry to the coverage that the sluggish post-pandemic recovery that has shaped investor/business/household sentiment.”

That is a key point.

There has been much hand-wringing in recent months about why international investors are shunning UK assets and why some UK companies have sought to switch their main stock market listing from London to New York.

Much of that negativity will have been informed by headlines about the UK’s lacklustre growth post-pandemic.

There is a word of caution, though. One is that the national statisticians of other countries are embarking on similar revisions to their GDP statistics using something called the “SUTS” – supply and use tables – framework. This approach is reckoned to provide a more accurate assessment of how a particular industry or sector has performed and, by extension, the economy as a whole. The statistics offices of the UK and the US are, at present, the only ones to have done this.

As the ONS pointed out today: “This means that the UK has one of the most up-to-date sets of estimates for this period of considerable economic change. Other countries follow different revision policies and practices, which can result in their estimates being revised at a later date.

“It is important this is considered when comparing the UK with other countries and our international comparison position is likely to change once other countries fully confront their datasets over time.”

And there is a broader point to make, too, which is that it is debatable whether GDP is that meaningful a measure, these days, of how the economy is doing and how all of us, as individuals, are living their lives.

As Savvas Savouri, economist at the hedge fund manager Toscafund and one of the Square Mile’s smartest economists, has told clients in the recent past: “GDP is a nonsensical measure of the modern UK economy… it fails to do justice to the ever-growing service-side of the UK economy.

“After all, measuring the production of textiles is very much easier to do than capturing the volume and value of coding for gaming, e-commerce and e-finance, architectural design, writing of legal contracts, insurance underwriting, academia to students from overseas and so forth.”

The ONS would doubtless argue, in response, that this is why it is seeking to finesse its methodology.

And, for now, it is helping paint a more encouraging picture of the UK economy.

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‘Sticking to Labour manifesto pledge costs millions of workers’, Resolution Foundation says

Published

17 hours ago

November 27, 2025

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'Sticking to Labour manifesto pledge costs millions of workers', Resolution Foundation says

Sticking to Labour’s manifesto pledge and freezing income tax thresholds rather than raising income tax has hurt low- and middle-income earners, an influential thinktank has said.

Millions of these workers “would have been better off with their tax rates rising than their thresholds being frozen”, according to the Resolution Foundation’s chief executive, Ruth Curtice.

“Ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners”, she said.

Chancellor Rachel Reeves announced in her budget speech that the point at which people start paying higher rates of tax has been held. It means earners are set to be dragged into higher tax bands as they get pay rises.

The chancellor felt unable to raise income tax as the Labour Party pledged not to raise taxes on working people in its election manifesto.

But many are saying that pledge was broken regardless, as the tax burden has increased by £26bn in this budget.

When asked by Sky News whether Ms Reeves would accept she broke the manifesto pledge, she said:

“I do recognise that yesterday I have asked working people to contribute a bit more by freezing those thresholds for a further three years from 2028.”

“I do recognise that that will mean that working people pay a bit more, but I’ve kept that contribution to an absolute minimum”.

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The Resolution Foundation thinktank, which aims to raise living standards, welcomed measures designed to support people with the cost of living, such as the removal of the two-child benefit cap, which limited the number of children families could claim benefits for.

The announced reduction in energy bills through the removal of as yet unspecified levies was similarly welcomed.

The chancellor said bills would become £150 cheaper a year, but the foundation said typical energy bills will fall by around £130 annually for the next three years, “though support then fades away”.

More to come

This budget won’t be the last of it, Ms Curtice said, as economic growth forecasts have been downgraded by independent forecasters the Office for Budget Responsibility (OBR), and growth is a “hurdle that remains to be cleared”.

“Until that challenge is taken on, we can expect plenty more bracing budgets,” she added.

It comes despite Ms Reeves saying as far back as last year, there would be no more tax increases.

Ultimately, though, the foundation said, “The great drumbeat of doom that preceded the chancellor’s big day turned out to be over the top: the forecasts came in better than many had feared.”

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Budget 2025: The town where voters placed trust in Labour – and some now feel betrayed

Published

17 hours ago

November 27, 2025

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Budget 2025: The town where voters placed trust in Labour - and some now feel betrayed

Hitchin in Hertfordshire does well in the polls.

On the edge of the Chilterns and 30 minutes from central London by train, it’s Britain’s most expensive market town for first-time buyers. It’s also been voted one of the top 10 best, and top 20 happiest, places to live in the country.

Last summer Labour did well in the polls here too. Hitchin’s 35,000 inhabitants, with above average earnings, levels of employment, and higher education, ejected the Conservatives for the first time in more than 50 years.

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Having swept into affluent southern constituencies, Rachel Reeves is now asking them to help pay for her plans via a combination of increased taxes on earnings and savings.

While her first budget made business bear the brunt of tax rises, the higher earners of Hitchin, and those aspiring to join them, are unapologetically in the sights of the second.

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Kai Walker, 27, runs Vantage Plumbing & Heating, a growing business employing seven engineers, all earning north of £45,000, with ambition to expand further.

He’s disappointed that the VAT threshold was not reduced – “it makes us 20% less competitive than smaller players” – and does not love the prospect of his fiancee paying per-mile to use her EV.

But it’s the freeze on income tax thresholds that will hit him and his employees hardest, inevitably dragging some into the 40% bracket, and taking more from those already there.

“It seems like the same thing year on end,” he says. “Work harder, pay more tax, the thresholds have been frozen again until 2031, so it’s just a case where we see less of our money. Tax the rich has been a thing for a while or, you know, but I still don’t think that it’s fair.

“I think with a lot of us working class, it’s just a case of dealing with the cost. Obviously, we hope for change and lower taxes and stuff, but ultimately it’s a case of we do what we’re told.”

Reeves’s central pitch is that taxes need to rise to reset the public finances, support the NHS, and fund welfare increases she had promised to cut.

In Hitchin’s Market Square it has been heard, but it is strikingly hard to find people who think this budget was for them.

Jamie and Adele Hughes both work, had their first child three weeks ago, and are unconvinced.

“We’re going to be paying more, while other people are going to be getting more money and they’re not going to be working. I don’t think it’s fair,” says Adele.

Jamie adds: “If you’re from a generation where you’re trying to do well for yourself, trying to do things which were once possible for everybody, which are not possible for everybody now, like buying a house, starting a family like we just have, it’s extremely difficult,” says Jamie.

Liz Felstead, managing director of recruitment company Essential Results, fears the increase in the minimum wage will hit young people’s prospects hard.

“It’s disincentivising employers to hire younger people. If you have a choice between someone with five years experience or someone with none, and it’s only £2,000 difference, you are going to choose the experience.”

After five years, the cost of living crisis has not entirely passed Hitchin by. In the market Kim’s World of Toys sells immaculately reconditioned and repackaged toys at a fraction of the price.

Demand belies Hitchin’s reputation. “The way that it was received was a surprise to us I think, particularly because it’s a predominantly affluent area,” says Kim. “We weren’t sure whether that would work but actually the opposite was true. Some of the affluent people are struggling as well as those on lower incomes.”

Customer Joanne Levy, shopping for grandchildren, urges more compassion for those who will benefit from Reeves’s spending plans: “The elderly, they’re struggling, bless them, the sick, people with young children, they are all struggling, even if they’re working they are struggling.”

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Budget 2025: The town where voters placed trust in Labour – and some now feel betrayed

Published

23 hours ago