Over the last year there has been a torrent of commentary claiming that the UK’s economic performance since 2019 has been the worst in the G7 and suggesting Brexit as the chief cause. A typical example is the Financial Times story of 30 September 2022 headlined ‘UK remains only G7 economy to languish below pre-pandemic levels’. This story included an assertion by an economist that ‘the damage inflicted to the economy’s supply side by Covid and Brexit is even larger than previously thought’. Similarly a BBC piece of November 2022 breathlessly stated that ‘amazingly, the UK still has an economy 0.4% smaller than in…..Q4 2019’. The story went on to link this directly to Brexit, claiming it reflected higher trade barriers and less access to EU labour.
In contrast to this rash of slightly hysterical analysis, Briefings for Britain authors cautioned that GDP measurement during the pandemic was likely to have been very inaccurate, that UK GDP could well be revised up later, and that assessing Brexit’s effects using a short run of data of dubious accuracy wasn’t sensible.
This view has now been vindicated by major upward revisions to UK GDP data. The latest data show that the UK economy is around 2% larger than the ONS previously thought (over £40 billion on an annualised basis). The new time series shows the economy rebounding much more quickly from the covid recession than previously estimated (Figure 1). In Q2 2023, UK GDP was around 2% above the 2019 average level – so the claim that the economy is still smaller than pre-pandemic level has been rendered entirely obsolete.
Figure 1: UK GDP now 2% higher than in 2019
The revisions mean the UK also looks much better than before in international comparisons. Far from the UK being the ‘worst performer in the G7’, the UK now occupies a respectable mid-table position in terms of growth since 2019. Growth has been higher in the US (thanks in large part to huge fiscal stimulus there), Canada and Italy (where data has also recently been revised up), but the UK has grown faster than France, Japan, or Germany (Figure 2).
Figure 2: UK GDP growth mid-table in the G7 since 2019
Source: ONS, national statistical offices
A particular focus of pessimistic commentary on UK economic performance has been on investment. Over the recent years, a number of observers have claimed that UK business investment has flatlined since 2016 with Brexit again blamed. Notable examples of this kind of analysis came from the National Institute of Economic and Social Research in 2019 and the Bank of England’s Haskell earlier this year. Once again, Briefings for Britain authors criticised these approaches, noting among other things that these analyses exaggerated the apparent weakness of business investment by using inappropriately short time periods and comparing investment levels with trend lines drawn through cyclical peaks.
Figure 3: UK business investment far stronger than initial estimates
The authors of these analyses also ought to have been aware that business investment data is especially prone to upward revisions in later data vintages. And revisions to the UK data on business investment have indeed rendered the pessimists’ case redundant. The new data show a strong upward trend in UK business investment since the end of 2021, so that by Q2 2023, business investment was almost 10% higher the Q2 2016 level (Figure 3). The scale of the revisions is very large – the new series is about 8.5% higher in the first three quarters of 2022 than the data were showing at the start of this year.
Current business investment levels also now look relatively strong compared to the historic trend. If we draw a trend line from 2006-2016 Q2 (i.e. to the point of the EU referendum) and then extrapolate it, business investment in Q2 2023 was about 8% above this line. If we drew the trend line from the point the series began, in 1997, the positive gap would be even larger. Overall, what we see here is that by waiting a little while for better vintages of data, and drawing trend lines appropriately, we get a totally different picture to the one Brexit pessimists have been noisily proclaiming over the last few years. Indeed, the picture would look even more favourable if we adjusted for the sharp decline in North Sea investment over recent years (from 6% to less than 1% of business investment since 2016) – something that is not connected to Brexit.
Once again, the new investment data also makes the UK look better in an international comparison. The UK is again mid-table among the G7, with a performance only moderately weaker than Italy, the US and France but somewhat stronger than Canada, Japan and especially Germany (Figure 4).
Figure 4: UK business investment performance now looks respectable
Source: ONS, national statistical offices. Foreign investment is private sector investment less investment in housing.
The revisions to the UK’s GDP data have, at a stroke, rendered a large volume of pessimistic commentary on Brexit irrelevant. In the process it makes the people and institutions who have pushed this anti-Brexit commentary look foolish. This includes a large number of people who really should know better, such as professional economists, but who – seven years after the EU referendum – still apparently cannot stop their prejudices dominating careful analysis.