The UK economy has emerged from the Covid-19 pandemic in a stronger state than previously thought, according to revised data from the Office for National Statistics (ONS).
The new estimates show that the annual volume GDP growth for 2022 is now 4.8%, up from the earlier estimate of 4.3%.
Small revisions for 2020 and 2021 reflect economic adjustments
The ONS update, released on Wednesday, also includes minor revisions of 0.1 percentage points to GDP growth estimates for 2021 and 2020, with figures for earlier years remaining unchanged.
These adjustments reflect a more accurate representation of economic activity, considering the full administrative and survey data now available to the ONS.
Stronger growth in key sectors drives GDP revision
The upgraded estimate for 2022, a year marked by high inflation and market turmoil following Liz Truss’s “mini” Budget, is partly attributed to stronger growth in the transport, professional, and business support industries.
The ONS’s fuller dataset has provided a clearer picture of these sectors’ contributions to the economy.
Moreover, the revised figures account for the changing economic structure post-pandemic. The health sector, which saw an increased share of the economy during the pandemic, remained larger in 2022 as the NHS worked to address care backlogs.
Similarly, the energy sector’s share of economic activity grew due to the surge in global oil and gas prices following Russia’s invasion of Ukraine.
Hospitality and manufacturing sectors remain impacted
Conversely, the hospitality sector, heavily affected by Covid-19 lockdowns, continues to be smaller than its pre-pandemic size.
The manufacturing sector’s share of output also declined, impacted by high energy prices.
The ONS also revised its assessment of the rail and air transport sectors during the pandemic.
The rail industry, which received government subsidies to maintain operations, was found to be a larger drag on growth in 2020 and 2021 than previously thought, as airlines largely ceased operations.
Annual revisions less dramatic than previous years
This year’s revisions by the ONS are less dramatic than those in the past two years.
Last year, the agency’s revisions led to a significant reappraisal of the UK’s economic performance during the pandemic, showing the economy to be more resilient and less of an international outlier than initially assumed.
The latest figures reinforce this revised perspective, indicating that the cumulative GDP growth from 2020 to 2022 was 2.1%, higher than the previous estimate of 1.9%.
UK recovery among G7 peers
Simon French, chief economist at the investment bank Panmure Liberum, commented that the UK’s recovery from the Covid crisis is now “increasingly looking middle of the pack among its G7 peers.”
However, he noted that this upgrade is unlikely to impact the UK fiscal outlook, which is based on more recent borrowing figures, or influence interest rate decisions by the Bank of England, which focuses on the current growth trajectory.
Challenges of economic estimation during the pandemic
The ONS has faced criticism for the scale of its reassessments, particularly last year. The agency acknowledged that recent revisions reflect the widespread challenges of economic estimation during the pandemic and recovery periods.
Craig McLaren, head of national accounts at the ONS, explained that the agency usually updates the “weight” it gives to each industry within GDP annually but had to pause this process when much of the economy was either closed or operating differently than usual.
The first update to these weights since 2019 had a notable impact due to the significant changes in economic operations resulting from both the pandemic and the effects of Russia’s invasion of Ukraine.
In September, the ONS will publish figures bringing its 2023 and 2024 GDP estimates in line with the updated and reweighted data, providing a clearer view of the ongoing economic recovery.
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