Britain’s economy ended 2023 in better shape than previously believed, according to revised official figures that suggest the recovery from the pandemic was stronger than first reported.

The Office for National Statistics (ONS) said the economy was 2.2% bigger than its pre-Covid peak by the end of last year, an upgrade on its earlier estimate of 1.9%.

The revision stems from a regular update to how the UK’s gross domestic product (GDP) is measured, incorporating more detailed information about corporate activity, tax receipts and public services.

Stronger profits and R&D drive upgrade

The ONS said later data from corporation tax returns revealed that company profits in 2022 were stronger than initially reported. That uplift fed through into a higher level of GDP going into 2023.

Better measurement of research and development spending – an area where Britain has long been accused of underreporting – also boosted the figures. The statisticians said they had improved the way they track the activities of large multinational firms, reflecting the increasingly globalised nature of the UK economy.

Education revised, but recovery slower

Not all sectors fared better in the recalculation. The ONS said changes to education data showed the initial fall in 2020 during the first wave of the pandemic was less severe than thought. But the bounce back in the years afterwards has been slower, meaning the overall growth trajectory for the sector is slightly weaker.

‘Pattern of growth broadly unchanged’

Craig McLaren, head of national accounts at the ONS, stressed the revisions should not be interpreted as a dramatic rewrite of the UK’s economic fortunes.

“While the size of the economy now captured by GDP has increased, the long-term pattern of growth is broadly unchanged,” he said. “These improvements announced today help ensure we can continue to provide high-quality estimates of the size and shape of our ever-changing and increasingly digital and globalised economy.”

How does the UK compare internationally?

The new figures improve Britain’s standing among the world’s richest economies, after years of debate over whether the UK had recovered more slowly than peers.

On the revised data, the UK economy is now slightly larger than France’s relative to its pre-pandemic size, and ahead of Germany, which has struggled with weak industrial output and high energy costs since Russia’s invasion of Ukraine.

The US remains the clear outlier, having grown far faster than other G7 economies since 2020, thanks in part to heavy fiscal stimulus and strong consumer demand. Japan and Canada also continue to post stronger recoveries than much of Europe.

Economists said the UK’s upgraded numbers mean it can no longer be classed as the “laggard” of the G7, though the margin of improvement is modest compared with American performance.

Implications for government and the Bank

The revisions come at a sensitive moment for Rachel Reeves, who has faced warnings of a £51bn hole in the public finances. A stronger economy in the base year of 2023 could provide a slightly firmer foundation for the Treasury’s calculations ahead of the autumn budget.

Economists said the upgrade would not dramatically alter the UK’s near-term challenges, with growth slowing in 2024 under the weight of higher borrowing costs, tax rises and global trade frictions.

For the Bank of England, the data provides reassurance that the UK’s underlying growth performance may have been more resilient than feared, though policymakers remain focused on signs of weakness in household spending and the labour market.