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UK GDP: what do the quarterly data tell us two years into the pandemic?

UK GDP increased by 1.3% in the final quarter of 2021, with increases in transport, storage and administrative activities important contributors to growth. The data suggest that annual GDP grew by 7.4% in 2021 – the largest annual increase since the Second World War.

On 31 March 2022, the Office for National Statistics (ONS) released its revised quarterly estimates of national accounts data for the final quarter of 2021 (October to December). UK GDP is estimated to have increased by 1.3% in this period, an upward revision of the first quarterly estimate of a 1% rise (published three and a half weeks after the end of the quarter).

Annual GDP growth for the UK in 2021 now stands at 7.4%. This is the largest annual increase since the Second World War. These figures also show that GDP is now estimated to be 0.1% lower than in the final quarter of 2019, before the effects of Covid-19 began.

Figure 1: UK real GDP over the pandemic, relative to 2019Q4

Source: ONS

What is happening to output growth?

Services output grew by 1.5% in the final quarter of 2021. This was revised upwards from the quarterly estimate of 1.2%. This implies that output stemming from services is 0.9% larger than pre-pandemic levels.

According to the latest data, large quarterly growth was seen in transport and storage (7.7%). This was driven by online shopping in the build-up to Christmas 2021, which led to a greater need for the delivery of goods. The administration and support services sector experienced similar levels of growth (6.4%), largely because of increased activity from employment agencies, travel agents and office administration, as people returned to work and started to go on holiday again.

Looking at month-on-month growth, GDP in December 2021 fell by 0.2%. This decline is attributable to the emergence of the Omicron variant at the end of the year. Accommodation and food services were particularly affected (falling by 3.6%), as bars and restaurants faced large numbers of cancellations in a period that is ordinarily one of the busiest. The sharp drop in dining out and socialising was one of the main contributors to GDP decline in December.

Figure 2: Percentage change in service sector output from 2019 Q4

Source: ONS

Another large contributor to output growth was construction, which rose by 1% over the final quarter of 2021. But output in this sector still remains 1.8% below pre-pandemic levels. In more recent ONS estimates, construction grew by 1.1% in January 2022, which indicates that this sector may be making a recovery.

What next?

At 0.1% below pre-pandemic levels, UK GDP seems to be recovering, as is the case in most G7 countries. But the current geopolitical landscape is a great cause for uncertainty: supply chain inflation has been prevalent since the start of the year and current fuel prices are unprecedented.

In its February 2022 report, the Bank of England’s Monetary Policy Committee (MPC) claimed that countries that are net importers of energy, such as the UK, can expect rising energy prices to affect future GDP growth as households reduce spending because of the hit to their real incomes. The latest GDP figures offer some cause for optimism, but plenty of significant challenges remain.

Where can I find out more?

  • The latest ONS data release.
  • Previous releases can be found here.
  • The Bank of England’ February 2022 Monetary Policy Report is available here.

Who are experts on this question?

  • Jagjit Chadha
  • John Gathergood
  • Stuart McIntyre
  • Michael McMahon
  • Paul Mizen
Author: Elias Wilson

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