Liam Halligan: The UK economy - which way now?

Nearly two years after the UK experienced its biggest economic collapse in 300 years, the economy has finally returned to pre-pandemic levels.

New figures that gross domestic product or GDP – the combined commercial activity of individuals, firms and the government – grew 0.9 per cent in November, almost twice as much as expected.

That suggests the overall economy is now bigger – just – than before the pandemic, with GDP now 0.7 per cent larger than in February 2020, the last month before lockdown began. So on paper at least, it’s good news – the UK has “fully recovered”.

We’ve taken our time, though, getting there. One reason is that the UK's outward-facing, retail and service-driven economy was hit particularly hard during lockdown, with our GDP plunging in 2020 more than any advanced economy.

That’s one reason US and Swedish GDP returned to pre-pandemic levels last spring, while China took just a few months. Britain, though, is catching up – and this bounce-back effect is one reason the International Monetary Fund says the UK will grow faster than other advanced nations in 2022. But will that actually happen?

While the UK economy grew in November, as today's numbers show, when the December figures are published they may show GDP shrinking again – given the impact of the plan B Covid restrictions, not least on travel and hospitality.Growth may also slowing now, during early 2022, given elevated inflation, April's incoming tax rises and spiralling energy costs.

Those pandemic-related supply chain bottlenecks labour shortages may also linger – again, slowing the economy down.

Official data suggests 3 per cent of the British workforce is currently on sick leave – off work due to Covid symptoms, self-isolation or quarantine. This is the highest figure since June 2020 – the height of full lockdown.

Britain has a deserved reputation for economic grit and resilience. We WILL put Covid behind us – and build our economy and society once more. Yet, while today’s GDP number is good news, our economy could go backwards before it goes forward again.

The UK economy: Which way now?