Revised GDP data showed a 2% increase since the Covid pandemic. That, however, might be changed by this summer’s data.
Summer is never kind to the British economy. Wet rain, cold weather and horrid beaches typically attract fewer foreign tourists to the UK than British citizens going on vacation. According to the Office of National Statistics (ONS), the summer of 2022 attracted roughly 10 million overseas tourists, compared to 24 million UK residents traveling abroad.
This, of course, has a serious impact on the British economy. While countries like Italy and France massively benefit from overseas tourism, typically growing in GDP over the summer, it is not uncommon for the British economy to shrink in the hot season.
Economists polled by Reuters expected a 0.2% GDP contraction in July. However, fresh data released on Wednesday by the ONS revealed a larger dip of 0.5% instead.
This prompted back recession fears, especially and the Bank of England eyes further increases in interest rates to fight off inflation.
Goldman Sachs now expects the UK economy to grow only by 0.3% in 2023, down from 0.5%. JP Morgan downgraded its measurement to 0.4% GDP growth from 0.6%.
“We think the economy is likely to more or less flatline over coming quarters and a mild recession can’t be ruled out,” said ING economist James Smith.
Ups and downs
This week’s news on the British GDP is in stark contrast to what the ONS found last Saturday. According to the revised GDP data, the UK economy actually performed much better during the pandemic, passing pre-Covid levels already in the last quarter of 2021. In particular, the ONS revised British GDP 2% higher than originally thought.
So far, the UK was believed to be the only G7 economy to remain below pandemic levels. The new reading, however, puts it on par with its European peers like France and Italy, and leaves Germany as the negative outlier.
The ONS reached this revised conclusion by using a different method of GDP calculation. The new system, dubbed “Supply and Use Tables” (SUTS), takes into further account digital services, historically hard to measure precisely.
The United Kingdom and the United States are the only countries to have revised GDP using this method. When other European nations will released revised data with the SUTS method, it will likely increase their readings too.
On the other hand, the UK economy relies much more on services than Germany or Italy, therefore this reading could still put the British economy ahead.
But the past cannot change the present. The UK still risks falling into recession, as well as the European Union.