The UK actually fared much better after COVID than first thought – here’s why it matters
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.”
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Economy more ‘resilient’ than expected
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.
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Inflation: ‘We’re getting poorer’
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.
Representatives of Thames Water’s multinational syndicate of shareholders are poised to quit as directors of its corporate entities after refusing to inject the billions of pounds of funding required to bail it out.
Sky News has learnt that a number of board members at companies connected to Kemble Water Finance, Thames’s parent, are expected to resign in the coming days.
City sources described the move as “the logical next step” after the owners of Britain’s biggest water utility said they would not commit more than £3bn to help upgrade its ageing infrastructure and shore up its debt-laden balance sheet.
A default on part of Thames Water‘s holding company debts last month has raised the prospect that the company is heading towards special administration, a form of insolvency that would effectively leave the government liable for managing a utility firm which serves nearly a quarter of Britain’s population.
Money latest:
Rainy day for iconic British brand as profits suffer
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Thames Water under threat
Thames Water is owned by a group of sovereign wealth funds and pension funds from countries including Abu Dhabi, Australia, Britain, Canada and China.
A number of the investors are represented on boards which sit at various points in the group’s labyrinthine capital structure.
It was unclear on Wednesday whether Michael McNicholas, a representative of the giant Canadian pension fund Omers and who sits on the board of Thames Water Utilities Limited, was among those in the process of stepping down.
Read more:
Directors hold crunch talks over utility’s future
Even bigger surge in bills proposed under new plans
Along with the rest of the privately owned water industry, Thames Water faces a crucial moment next month when Ofwat, the industry regulator, publishes its draft determination on companies’ five-year business plans.
The draft rulings will be subject to negotiation before final versions are published in December.
Thames Water and a spokesman for Kemble declined to comment.
Business
Royal Mail ‘minded’ to accept £3.5bn takeover proposal by Czech billionaire Daniel Kretinsky
The owner of Royal Mail has said it is “minded” to accept a revised takeover bid by Czech billionaire Daniel Kretinsky.
The latest offer from Mr Kretinsky’s investment firm EP Group values the Royal Mail parent company International Distribution Services (IDS) at £3.5bn.
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Mr Kretinsky’s firm already owns most of IDS as a 27.6% shareholder but wishes to buy the remaining shares.
An earlier offer of £3.20 a share had been rejected last month for being too low.
But now he has offered to pay £3.60 for each share. The day before the original offer was made a share in IDS cost £2.14.
Keep up with all the latest news from the UK and around the world by following Sky News
An extra shareholder pay out of 8 pence a share has been offered by EP Group, if the deal closes, as has a 2 pence per share payment to every stakeholder, expected to be paid in September.
It would bring the total value of an IDS share to 73% more than it cost before the prospect of a buyout was raised.
‘Good value’
“Having considered the proposal, the board has indicated to EP Group that it would be minded to recommend an offer to IDS shareholders”, the IDS board said.
The price is “fair” and reflects the value of current growth plans, the IDS chairman said.
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Royal Mail could be allowed to deliver letters just three days per week, under a series of options outlined by the industry regulator.
Consideration was given by the board to the national significance of Royal Mail as the operator of the postal network.
“The board is particularly mindful of Royal Mail’s unique heritage and responsibilities as the designated universal service provider in the United Kingdom and a key part of national infrastructure”, it said.
In assessing the proposal, the board has also been very mindful of the impact on Royal Mail and GLS and their respective stakeholders and employees, as well as broader public interest factors”.
EP Group has until 29 May to advance or withdraw its takeover bid.
Who is Daniel Kretinsky?
There has already been scrutiny of Mr Kretinsky’s part ownership in the postal company but a government national security concerns review into his investment led to no intervention.
He also owns parts of West Ham Football Club and Sainsbury’s.
EP Group, which he controls, has financial interests in energy, logistics, and food retail.
The boss of the world’s biggest bank has told Sky News that Western economies have a “good hand” in the “economic battlefield” with China but declared it does not have to be war.
In a wide-ranging interview with Sky’s Wilfred Frost, chief executive and chairman of JPMorgan Chase Jamie Dimon said the West was going to have a “hard time” as long as China had close ties with Russia.
But he said it was well placed due to the resilience of their collective economies and long-standing partnerships, such as NATO.
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However, he warned of the dangers of fragmentation since Donald Trump, when US president, pulled out of the Trans-Pacific Partnership in 2017.
He also said that Joe Biden’s administration should have worked with allies over the effects of his Inflation Reduction Act.
The massive programme of incentives to bolster the green economy had the effect of taking investment out of Europe at a time when Russia’s war in Ukraine was dominating the agenda.
The bank boss warned too of a backlash from China over US tariffs against its electric cars and solar panels announced just this week, arguing that a joint approach from western powers over China more generally would carry more weight.
Mr Dimon, who has run JPMorgan since 2005 and is widely seen as the most influential boss of a financial services company in the United States, said: “We have competition with China.
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Why is the US taking aim at China?
“I think the American government is doing the right thing to fully engage. That doesn’t mean the Chinese are going to like everything we do just like we don’t like everything they do but it doesn’t have to be war, it can be tough competition and we should be prepared for that.”
“The most important thing”, he added, “is that we do it together”.
“They’re not an enemy, you know, but they’re competing. They want a different world than we want. And I think they want a different world than we want in the Western world… it’s worth fighting for.”
“We all made a little bit of mistake in how we kind of expected them after WTO (World Trade Organisation) to become more Western and things like that. It’s okay. Don’t cry over spilled milk,” he concluded.
Mr Dimon was speaking 24 hours after the US-based bank, which has 22,000 staff and a 200-year history in the UK market, announced £40m in new investments to help connect young people and underserved communities to economic opportunities.
They followed the opening of a new tech centre in Glasgow.
JPMorgan Chase – perhaps best-known in this country for its Chase retail division – is the biggest bank in the world by market value with a capitalisation of almost $600bn (£475bn).
Mr Dimon, who was initially critical of Brexit following the UK’s split from the EU, spoke of the bank’s continuing commitment to the country having called the future of its UK operations into question in 2021.
Asked about the looming election, he said that talks with Rishi Sunak and Sir Keir Starmer had left him in no doubt that both the Conservatives and Labour were “pro business”.
He described how growing economies benefits everybody as it allows for investment.
“Everybody I heard… Conservative and Labour, (is) talking about growing the economy, technology, research and developments, simplifying regulations, making it easier for people to start businesses and grow businesses, making sure schools educate… those policies work,” he said.
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