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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Trump to sign US-UK tech partnership in drive for AI

Published

2 hours ago

September 17, 2025

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Trump to sign US-UK tech partnership in drive for AI

Some of the biggest US technology companies have pledged billions of pounds of investment to turbocharge Britain’s artificial intelligence (AI) industry, as the two countries announce a landmark technology deal.

Nvidia, Microsoft, Open AI and Google made a flurry of announcements to coincide with President Trump‘s state visit to the UK.

They include plans to build data centres and invest in AI research and engineering.

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Sir Keir Starmer described the agreement, which both leaders will sign over the coming days, as “a generational step change” in Britain’s relationship with the US.

The deal will see both countries cooperate on AI, quantum computing and nuclear energy, with investment in modular reactors revealed earlier this week.

The prime minister said it was “shaping the futures of millions of people on both sides of the Atlantic, and delivering growth, security and opportunity up and down the country”.

The government said the deal would deliver thousands of jobs, with a new AI Growth Zone in the North East of England earmarked for 5,000 jobs.

The region will host a new data centre developed in partnership with ChatGPT developer OpenAI, the US chip giant Nvidia and the British data centre company Nscale. The UK government will supply energy for the project, which will be based in Blyth.

Jensen Huang, chief executive of Nvidia, who has previously drawn attention to Britain’s inadequate levels of digital infrastructure, said: “Today marks a historic chapter in US-United Kingdom technology collaboration.

“We are at the Big Bang of the AI era – and the United Kingdom stands in a Goldilocks position, where world-class talent, research and industry converge.”

The Blyth data centre is part of Stargate, Open AI’s infrastructure project to build large data centres across the US.

The company has also developed sites in Norway and the UAE. Nvidia, which provides the graphic processing chips (GPUs), expects to generate $20bn (£14.6bn) by the end of this year from “sovereign” deals with national governments over the coming years.

Sam Altman, OpenAI’s chief executive, said: “The UK has been a longstanding pioneer of AI, and is now home to world-class researchers, millions of ChatGPT users and a government that quickly recognised the potential of this technology.

“Stargate UK builds on this foundation to help accelerate scientific breakthroughs, improve productivity, and drive economic growth.”

Microsoft also pledged £22bn, its largest ever investment in the UK, to expand data centres and construct the country’s largest AI supercomputer.

Meanwhile, Google owner Alphabet pledged £5bn to expand its data centres in Hertfordshire and fund its London-based subsidiary DeepMind, which uses AI to power cutting edge scientific research. The company was founded in Britain and acquired by Google in 2014.

Other investments include £1.5bn from AI cloud computing company CoreWeave and £1.4bn from Salesforce.

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Jaguar Land Rover cyber attack: No discussions’ on taxpayer aid to suppliers

Published

8 hours ago

September 16, 2025

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Jaguar Land Rover cyber attack: No discussions' on taxpayer aid to suppliers

There are “no discussions around taxpayers’ money” to prop up Jaguar Land Rover’s (JLR) suppliers, according to the prime minister’s official spokesman, as the carmaker grapples a lengthening production shutdown following last month’s cyber attack.

JLR factories fell silent more than two weeks ago. While it is damaging for the company, it represents a perilous loss of business for the supply chain which has also been forced to send workers home.

Some have already lost their jobs.

Unions and the business and trade committee of MPs were among those to request the possibility of aid to prevent job losses and employers going bust as the disruption drags on.

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What happened?

It was revealed on 1 September that global production at JLR had been stopped following a cyber attack.

IT systems were taken offline by the company under efforts to limit penetration and damage.

The company appeared confident initially that manufacturing could resume but restart dates have been consistently put back.

What damage was done?

Jaguar Land Rover has said very little about the extent of the attack.

But it admitted last week that some data had been accessed. It gave no further details.

Who is to blame?

A criminal investigation is continuing.

A group of English-speaking hackers claimed responsibility for the JLR attack via a Telegram platform called Scattered Lapsus$ Hunters, an amalgamation of the names of hacking groups Scattered Spider, Lapsus$ and ShinyHunters.

Scattered Spider, a loose group of relatively young hackers, were behind the Co-Op, Harrods and M&S attacks earlier in the year.

It is widely believed that M&S paid a sum to regain control of its systems after it was targeted with ransomware though it has refused to confirm if this was the case.

How is this affecting JLR as a business?

JLR typically produces about 1,000 vehicles a day.

Production staff are being paid but kept away from plants at Halewood on Merseyside, Solihull in the West Midlands, and its engine factory in Wolverhampton. It is the same story for workers at sites in Slovakia, China and India.

JLR revealed on Tuesday that production lines would now remain shut until at least 24 September.

David Bailey, professor of business economics at the Birmingham Business School, told the PA news agency: “The value of cars usually made at the sites means that around £1.7bn worth of vehicles will not have been produced, and I’d estimate that would have an initial impact of around £120m on profits.”

JLR achieved a pre-tax profit of £2.5bn for the financial year ending 31 March 2025, so should be able to absorb such a hit.

Sales and service operations continue as normal at its retail partners but the longer the disruption goes on, so do the risks to its inventories and bottom line.

Why does its supply chain need help?

This is the part of the operation that was always bound to suffer most in the event of a global JLR production shutdown.

No manufacturing means no need for parts.

The company usually depends on a ‘just in time’ supply chain to feed its factories and keep production lines running smoothly.

The Unite union has appealed for a COVID-style furlough scheme to prevent job losses and the risk of affected companies, often small or medium-sized firms, being forced out of business.

JLR’s operations are understood to directly support more than 100,000 jobs in the UK though that sum doubles through indirect roles.

The loss of any major supplier would risk further production delays once JLR’s IT systems are back online.

It is currently understood that the vast majority of directly affected workers remain in their jobs but have either been sent home or are on restricted tasks.

JLR suppliers Evtec, WHS Plastics, SurTec and OPmobility have had to temporarily lay off roughly 6,000 staff while a growing number of other firms are cutting workers, with temporary or contracted workers most likely to be affected.

What has the government said?

In addition to the remarks by the PM’s official spokesman, minister for industry Chris McDonald told Sky News: “We know this is a worrying time for those affected by this incident and our cyber experts are supporting JLR to help them resolve this issue as quickly as possible.

“I met the company today to discuss their plans to resolve this issue and get production started again, and we continue to discuss the impact on the supply chain.”

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NHS medicines bill should rise to preserve UK drug industry, minister says

Published

11 hours ago

September 16, 2025

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NHS medicines bill should rise to preserve UK drug industry, minister says

The NHS will increase the amount it spends on medicines in response to criticism from pharmaceutical companies that the UK is becoming uncompetitive, science minister Lord Vallance has told MPs.

Investments worth close to £2bn have been paused or cancelled this year by three of the world’s largest companies, Merck, AstraZeneca and Eli Lilly, amid a fraught negotiation between the industry and government over medicines pricing.

Addressing an emergency session of the science, technology and innovation select committee, Lord Vallance acknowledged that low prices historically paid by the NHS, and pressure from US President Donald Trump to cut prices for US consumers, had made the UK less attractive to industry.

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He said: “I’m deeply concerned that there’s been a 10-year decrease in the investment in support for a vital industry; vital for the economy, vital for patients and vital for the NHS at a time when medicines are making a bigger contribution than ever.

“I think the NHS will spend a larger percentage of its budget on medicines. These things are all about trade-offs, and the trade-off that has been made for the last decade has been [to spend] a lower percentage on medicines.

“We are now reaping the consequences of that in a very urgent way, and that is what we need now to address.”

Lord Vallance’s comments came after industry executives warned MPs the UK’s commitment to the life sciences faces a “credibility challenge”, and was losing out on investment to competitors including Germany, Ireland and Singapore.

Ben Lucas, the UK managing director of drugs giant Merck, which last week cancelled a £1bn research investment in London, said the decision was made in part because of the “end-to-end” difficulty of doing business in the UK.

He said: “This is a credibility challenge. The reality is we have been having, with successive governments, this continued conversation about the potential of the UK. But from a US-based executive team looking in, I hear; ‘We have heard this plan before, but it hasn’t necessarily been delivered’.”

Tom Keith-Roach, the UK president of AstraZeneca, which has paused or cancelled $650m of investment in recent months, said: “The UK is an increasingly challenging place to bring forward that innovation, to get through the front door… of the NHS, to deliver to patients and improve patient lives.

“What we are seeing globally is that discretionary investment in R&D is flowing into countries that are seen to value innovation and pull that through to patients. It is increasingly challenging to bring that investment into an environment that is apparently not.”

The industry wants the threshold for allowing new drugs into the NHS increased from the current £20,000-£30,000, unchanged since 1999, and to increase an overall medicines budget that has fallen in real terms by 11% in a decade.

It also wants a reduction in the complex “clawback” arrangements governing drug pricing, which this year will see the industry return 23% of total revenues to the NHS, around four times comparable schemes in Europe.

Lord Vallance said discussions with industry over reforming the clawback arrangements continued, despite formal negotiations ending without agreement earlier this year.