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UK economic recovery picks up steam, overtaking ‘sick man’ Germany

Skyscrapers in the financial, business and shopping district of Canary Wharf, London, UK.

Bloomberg | Bloomberg | Getty Images

LONDON – Britain’s economic performance since the start of the Covid-19 pandemic has surpassed that of France and Germany, according to new data revisions published on Friday.

The Office for National Statistics revealed that as of the end of the second quarter, the British economy was 1.8% larger than in the last quarter of 2019, the last full quarter before the outbreak.

Previous estimates from the Office for National Statistics in August showed that UK GDP was still 0.2% below pre-epidemic levels, making it the slowest recovery among developed economies.

The French economy is now 1.7% higher than in the fourth quarter of 2019, while Germany – now dubbed by some economists as the “sick man of Europe” – is just 0.2% above pre-pandemic levels.

British Finance Minister Jeremy Hunt said in a statement on Friday that the revised data “once again proved the doubters wrong.”

He added: “The best way to sustain this growth is to stick to our plan to halve inflation this year, with the IMF predicting that our economy will grow faster than Germany, France and Italy in the long term. “

Second-quarter GDP growth is expected to increase by 0.2%, while first-quarter growth is revised up to 0.3% from the previous forecast of 0.1%.

Still “economic stagnation”

The UK economy has been surprisingly resilient so far. However, in order to curb high inflation, the Bank of England has raised interest rates from 0.1% to 5.25% since December 2021, and this monetary policy tightening is in the early stages of being transmitted to the real economy.

“Unfortunately, this snapshot of economic data is not meaningful enough to change the overall picture of economic stagnation,” said Jack Finney, an economist at PwC.

UK MPs say GDP data 'shows economy's resilience'

“Output is just 0.4% above the same period a year ago. If anything, the revisions to the GDP data are likely to slightly weaken the UK’s growth prospects in 2023 and 2024, as they reduce the potential for a rebound in growth. “

PricewaterhouseCoopers expects economic growth to remain subdued while monetary tightening continues to weigh on economic activity, and expects annual GDP growth this year and next to continue to be “significantly below trend.”

Britain’s July GDP quarterly fell by 0.5% more than expected, and Finney said that in addition to the recent PMI data, there may be a slight contraction in the third quarter.

delayed pain

Richard Carter, head of fixed rates research at Quilter Cheviot, said Friday’s data offered some hope that the UK could avoid a recession, while there were signs that the cost of living crisis for UK households may be easing.

“While spending remains higher compared with pre-pandemic levels, disposable income is starting to grow, which has brought a huge impact on many households who have struggled through the winter and whose excess pandemic savings have dried up,” he said in a note. Relief.” emailed Friday.

“However, given the pace at which interest rates are rising and the cumulative effect of the cost-of-living crisis, this may simply be a case of pain being delayed, with 2024 looking more challenging.”

The Bank of England has been walking a tightrope between curbing inflation and the risk of tipping the economy into recession ahead of a general election in 2024. Carter said policymakers may be wary of overcorrecting interest rates and tipping the economy off balance.

“With rates expected to remain elevated for longer and with no indication of when the first rate cut will be, consumers will continue to be buffeted by economic headwinds,” he said.

“The economy may be strong right now, but it’s going to take a lot of effort to keep it going for this long.”

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