The UK Economy sees Significant Revision Upwards to Post-Pandemic Growth

Remember that post from 5 days ago where I asked if the UK is mispriced? In that post, I included some very gloomy datapoints about how the UK economy has stagnated relative to its EU / G7 peers. Well, perhaps the gloom was overly stated.

I'll include snippets from the FT article here.

Official statistics on Friday added almost 2 per cent to the size of the UK economy, in a surprise move that showed the country recovered much faster from the pandemic than previously reported. [...]

The changes reveal that, by the end of 2021, the country’s economy was 0.6 per cent larger than pre-pandemic levels — instead of 1.2 per cent smaller, as previously estimated. [...] [And, going to the most recent data in 2023, it is estimated to be 1.6% larger instead of 0.2% smaller]

In a preview of new national accounts data to be included in official figures from October, the ONS said it had uncovered big sources of growth it had previously not taken account of, particularly as the economy recovered from the pandemic in 2021

As recently as mid August, official data reflected ONS estimates that the economy had still not reached its pre-pandemic level, even by the second quarter of this year.

But, after the revisions are included in official figures in October, they will show that the UK economy recovered from the pandemic in late 2021, a recovery as strong as France’s and better than Germany’s.

That will add the equivalent of two years of current UK growth to the country’s gross domestic product.

There were modifications to the Covid growth plunge:

The ONS now says the economic contraction at the height of the Covid crisis in 2020 was not as deep as previously thought. It found that companies had been adding to piles of unsold stocks rather than running them down, as previously thought.

That accumulation of stock caused a £14bn upward revision to the level of real gross domestic product for 2022. As a result, GDP is estimated to have slumped by 10.4 per cent in 2020 rather than 11 per cent. The fall that year still qualifies as the worst annual contraction since the “great frost” of 1709.

Other mismeasurements found were in health care:

The ONS also discovered that wholesale companies and the health sector produced much more in 2021 than previously thought.

The revision was largely due to higher margins as Covid curbs eased, which boosted income, profits and ultimately GDP.

The ONS update corrects a previous anomaly, in which huge amounts of extra money was being spent in healthcare over the pandemic but measured output did not rise accordingly. This also meant GDP was significantly higher than previously thought.

Graph 1 of the revisions.

Graph 2 showing comparisons to other G7 countries. Go to the actual article to hover over the other countries. It's hard to see from the screenshot, but Germany is now the biggest laggard, and ahead of the revised UK is France (barely), Italy, Japan, Canada, and the UK. The UK is now 1.6% higher than pre-pandemic, while the US is up 6.1%, Canada +3.7% (not fully up to date), Japan +3.4%, Italy +2.1%, France +1.7%, and Germany +0.2%.

In my view, this increases my viewpoint that yes, the UK stock market is mispriced. No I don't think there are any shenanigans with the data, simply that measuring the aggregate output of an entire economy is hard. [Some people think government agencies release rosy data then manipulate it down later so the initial headlines are good, others are going to probably say governments exaggerate bad data so they can revise it upward, but... I think data collection is just hard.]