The UK economy has returned to its pre-pandemic size
Nearly two years after the UK experienced its biggest economic collapse in 300 years, the economy has returned to pre-pandemic levels. GDP is estimated by the ONS to have grown by 0.9 per cent in November, almost twice what had been expected – making it 0.7 per cent larger than it was in February 2020. The US and Sweden managed to pass pre-pandemic levels last spring. China took just a few months. But Britain, whose economy fell further than almost any developed country in 2020, is catching up.
The below chart shows how UK growth is now at the top end of forecasts (shaded area) better than envisaged in any Budget since that of March 2020.
Still the question remains: will the economy stay ‘recovered’? These figures are all pre-Omicron and we know what the subsequent data will reflect: last month was dampened by rising Covid cases, lower mobility, work-from-home guidance, all of which will take their toll on the economy. And Plan B restrictions in England were ushered in on the most lucrative week of the year for hospitality – another blow to the economy.
But we may see economic resilience. Lockdown number three didn’t see the economy take anything like the nosedive we saw during the first, as businesses and employees learned to adapt to the restrictions. As we can see in the graph above, it wasn’t a V-shaped recovery, but neither was it a W.
Oxford Economics estimates a 0.6 per cent month on month GDP drop to be recorded for last month, due mainly to voluntary social distancing and staffing shortages due to mandatory self-isolation, as so many people were contracting Covid. This would still leave the UK economy bigger than when Covid first hit, hopefully maintaining the status of ‘recovered’, even in the face of Omicron.
However, it’s far too early to celebrate. Returning to pre-pandemic levels gets us back to basics: a condition of recovery, but certainly not enough to say the economic pains of Covid are behind us. But the UK economy is so far proving more resilient than the vast majority of forecasters assumed. This will be, for the Tories, a rare and badly needed dollop of good news.