GDP first quarterly estimate, UK: October to December 2021

• UK gross domestic product (GDP) is estimated to have increased by 1.0% in Quarter 4 (Oct to Dec) 2021, following a downwardly revised 1.0% increase in Quarter 3 (July to Sept).

• In output terms, the largest contributors to this quarterly increase were from human health and social work activities driven by increased GP visits at the start of the quarter, and a large increase in coronavirus (COVID-19) testing and tracing activities and the extension of the vaccination programme.

• In Quarter 4 2021, excluding non-monetary gold in net trade, household consumption made the largest positive contribution to growth.

• The level of quarterly GDP in Quarter 4 2021 is now 0.4% below its pre-coronavirus level (Quarter 4 2019).

• Monthly estimates published today show that GDP fell by 0.2% in December 2021 but is at its pre-coronavirus level (February 2020).

• GDP increased by an estimated 7.5% in 2021, following a 9.4% fall in 2020.

UK gross domestic product (GDP) is estimated to have increased by 1.0% in Quarter 4 (Oct to Dec) 2021 (Figure 1). Compared with the same quarter a year ago, GDP increased by 6.5%.

Following the large 9.4% fall in 2020 because of the initial impact of the coronavirus (COVID-19) pandemic and public health restrictions, UK GDP saw an annual rise of 7.5% in 2021.

Monthly estimates published today show that GDP fell by 0.2% in December 2021 with reports that the Omicron variant impacted certain industries, retailing and hospitality in particular. Despite the fall in December, monthly GDP is in line with its pre-coronavirus level, while the Quarter 4 estimate remains 0.4% below its pre-coronavirus levels.

The Office for National Statistics (ONS) produces estimates of both monthly and quarterly GDP using separate methods and as such both estimates of GDP have slightly different pre-coronavirus levels (February 2020 for monthly GDP and Quarter 4 2019 for quarterly GDP). For more information, please see the comparisons to pre-coronavirus pandemic levels between quarterly and monthly GDP estimates.

Nominal GDP rose by 1.5% in Quarter 4 2021 and is 7.3% higher than the same quarter a year ago. It is now 4.9% above its Quarter 4 2019 levels.

The implied GDP deflator rose by 0.6% in Quarter 4 2021. Compared with the same quarter a year ago, the implied GDP deflator rose by 0.8%. This was mainly driven by the 3.6% increase in the implied price of household consumption, its highest rate since Quarter 3 (July to Sept) 2011. This deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP.

Figure 2 shows the latest GDP performance for a selection of developed economies. The United States, France and Canada are above their pre-coronavirus level of GDP.

More information on the international comparability of GDP estimates can be found in the article International comparisons of GDP during the coronavirus (COVID-19) pandemic.

Figure 3 shows the 2020 and 2021 annual growth rate of selected developed economies. All selected economies experienced positive 2021 GDP growth rates, following negative 2020 GDP growth rates, because of the impact of the coronavirus pandemic.

Services

Services output rose by 1.2% in Quarter 4 (Oct to Dec) 2021 and is now 0.5% above pre-coronavirus (COVID-19) levels (Quarter 4 2019). There is evidence that the emergence of the Omicron COVID-19 variant weighed on services output in December 2021 as outlined in the monthly bulletin.

There was a marked increase in output for human health and social work activities (4.5%) (Figure 4), primarily driven by a large increase in the NHS Test and Trace and COVID-19 vaccination activities (particularly in December), as well as increased non-COVID health activity at the start of the quarter. Growth in administrative and support activities (5.9%) was driven by higher activity from employment agencies, travel agents and office administration. The quarterly increase in transport and storage (7.3%) was driven by Black Friday event sales and online festive shopping leading to higher deliveries of goods.

The accommodation and food services, and wholesale and retail trade industries were both adversely impacted by the emergence of the Omicron variant towards the end of the quarter, as shown in the monthly GDP bulletin. Almost half of businesses in accommodation and food services reported a rise in cancellations from customers in December in the Business Insights and Conditions Survey. The Retail Sales Index showed a steep fall in December 2021 as shoppers avoided stores, with some customers bringing forward their festive shopping to November 2021.

Production

Production output fell by 0.4% in Quarter 4 2021 and is now 3.6% below its pre-coronavirus levels. The fall in production output was because of a 3.2% fall in electricity, gas, steam and air conditioning supply (energy) and a 4.5% fall in mining and quarrying.

The fall in energy in Quarter 4 follows exceptionally high output levels in May 2021, mainly resulting from adverse weather conditions boosting demand for energy.

The fall in mining and quarrying output was driven by a fall in extraction of crude petroleum and natural gas, following volatile growth across the year because of planned maintenance of oil fields.

Manufacturing output was broadly flat in the fourth quarter. However, Figure 5 shows that there were offsetting contributions within the industry. There was a large increase in the manufacturing of pharmaceutical products and pharmaceutical preparations, while manufacturing of machinery and equipment saw the largest fall. Anecdotal evidence in the October 2021 monthly GDP release found that businesses in some industries, including manufacturing of machinery and equipment, reported difficulties in sourcing supplies, which have led to them producing less output, despite seeing an increase in orders.

Construction

Construction output increased by 1.0% in Quarter 4 2021, following a fall of 1.4% in the previous quarter. Similar increases in both new work, and repair and maintenance (1.1% and 0.8% respectively) contributed to the growth. Further detail can be found in Construction output in Great Britain: December 2021, new orders and Construction Output Price Indices, October to December 2021. Survey responses reported that the industry faced a shortage of inputs and workers in this period.

Household consumption

Within private consumption, household expenditure rose by 1.2% in Quarter 4 (Oct to Dec) 2021 (Figure 6) but remains 0.4% below pre-coronavirus (COVID-19) levels. The quarterly increase was driven by increased spending on transport, net tourism, and clothing and footwear. These were partially offset by a fall in restaurants and hotels expenditure in Quarter 4, in part reflecting the emergence of the COVID-19 Omicron variant in late 2021 as well as the strong growth in Quarter 3 (July to Sept) 2021.

Consumption of government goods and services

In Quarter 4 2021, real government consumption increased by 1.9%, largely from a rise in health expenditure. The rise in health consumption was driven by increases in the NHS Test and Trace and COVID-19 vaccination programmes. In particular in December 2021, there was a 51% increase in coronavirus testing output in England driven by an increase in both number of tests processed in laboratories and number of lateral flow devices dispatched, and a 19% increase in coronavirus vaccination output driven by the booster programme.

Within the quarter, there was also strong growth in October and November 2021 in non-COVID-19 health activity, with an increase in face-to-face appointments at GP surgeries and a continuation of the increased use of telephone consultations.

Education consumption fell by 1.0% in Quarter 4 and now remains 6.1% below its pre-coronavirus level. The fall in the latest quarter reflects a decrease in student attendance towards the end of Quarter 4.

Gross capital formation

Gross fixed capital formation grew by 2.2% in Quarter 4 2021 but remains 1.8% below pre-coronavirus levels. There was an increase in dwellings investment, partly reflecting a rise in new housing orders following pent-up coronavirus demand. There was also an increase in government investment on the quarter.

Business investment rose by 0.9% in Quarter 4 2021 and is now 10.4% below its pre-coronavirus levels. Similar findings were reported by the Bank of England survey, which found that business investment was expected to have been 11% lower in Quarter 4 2021 than normal because of pandemic effects. There was an increase in capital expenditure on transport equipment in Quarter 4, reflecting spending on vehicles as new licence plates were released.

Our early estimates show that, excluding the alignment adjustment, there was an increase in inventories in Quarter 4, following a rise in the previous quarter (Table 2). This was driven by increases in wholesale and manufacturing. This was partly offset by retail with wider supply chain issues causing disruption. Other industries saw inventories fall with the motor trade sub-industry largely impacted by the shortage of semi-conductors.

Note that alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to gross domestic product (GDP). More detail can be found in Section 9: Quality and methodology. Therefore, the unadjusted data can provide a better understanding of the change in the inventory position of businesses in the whole economy.

Net trade

The UK’s trade deficit for goods and services narrowed to 1.1% of GDP in Quarter 4 2021, although this largely reflects movements in non-monetary gold (Figure 7). Excluding non-monetary gold, the trade deficit remained at negative 2.2% of nominal GDP in Quarter 4.

Total export volumes rose by 4.9% in Quarter 4 2021, driven by an 11.2% increase in the exports of goods, specifically fuels, chemicals, and machinery and transport equipment. Services exports, however, experienced a fall of 1.8%, driven by falls in telecommunications, financial services partially offset by rises in other business services, and insurance services.

Total import volumes fell by 1.5% in Quarter 4 2021. The fall in services imports by 3% was driven by falls in telecommunications, financial services, and manufacturing and maintenance. The fall in import goods by 1% was driven by unspecified goods, machinery and transport equipment, and crude materials.

Nominal gross domestic product (GDP) rose by 1.5% in Quarter 4 (Oct to Dec) 2021 and is 4.9% above its pre-coronavirus (COVID-19) pandemic levels. This rise was driven by an increase in all the main components of income (Figure 8).

Compensation of employees rose by 0.8% in Quarter 4 2021, mainly driven by increases in wages and salaries (1.5%). Employers’ social contributions fell by 2.0%, driven by decreases in redundancy payments.

Elsewhere, there was a fall in subsidies, primarily driven by reduced payments through the Coronavirus Job Retention Scheme (CJRS) and residual Self-Employment Income Support Scheme (SEISS). Subsidies remain above pre-coronavirus levels, mainly because of transport, rail and Housing Equity Injection (HEI) subsidies. Taxes in Quarter 4 2021 fell on the quarter, driven by reductions in Value Added Tax (VAT) receipts and taxes on imports.

Excluding the alignment adjustment, gross operating surplus (GOS) increased by 1.7% (Table 3). Note that alignment and balancing adjustments are typically applied to the GOS component to help balance the different approaches to GDP. More detail can be found in Section 9: Quality and methodology.

In line with the National Accounts Revisions Policy, the dataset is open to revision back to Quarter 1 (Jan to Mar) 2021 as part of this publication. The release includes the processing of annual data for 2021. In addition, there are also revisions in this release because of the replacement of forecasts with actual survey or external source data and new seasonal adjustment factors.

Contribution to growth

Contribution to growth indicates how many percentage points a sector or industry is adding or removing from a given growth rate, usually headline GDP growth.

Chained volume measure

Data in chained volume measures (CVM) within this bulletin have had the effect of price changes removed (in other words, the data are deflated), except for income data, which are only available in current prices.

Gross domestic product (GDP)

A measure of the economic activity produced by a country or region. Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP:

• the output approach
• the expenditure approach
• the income approach

Index numbers

Data relative to a given base value, which typically refers to a particular year or quarter.

For further definitions, please see the Glossary of economic terms.

Reaching the GDP balance

The different data content and quality of the three approaches – the output approach, the expenditure approach and the income approach – dictates the approach taken in balancing quarterly data. In the UK, there are more data available on output in the short-term than in either of the other two approaches. However, to obtain the best estimate of GDP (the published figure), the estimates from all three approaches are balanced to produce an average, except in the latest two quarters where the output data take the lead because of the larger data content.

Because of quarterly GDP being a balanced measure of the three approaches and the output approach focusing solely on growth in gross value added (GVA) and output as a proxy for GDP, there is a difference in 2019 and 2020 data (in both levels and growths terms) between the quarterly publications (average GDP) and the GDP monthly estimate (output approach to GDP). Quarterly GDP is the lead measure of GDP because of its higher data content and inclusion of variables, which enable the conversion from a GVA concept to a GDP basis.

Information on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP is available.

Alignment adjustments, found in Table M of the GDP first quarterly estimate data tables, have a target limit of plus or minus £3,000 million on any quarter.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where data content is particularly weak in a given quarter because of a higher level of forecast content. The balancing adjustments applied in this estimate are shown in Table 5. The resulting series should be considered accordingly.

The UK National Accounts are drawn together using data from many different sources. This ensures that they are comprehensive and provide different perspectives on the economy, for example, sales by retailers and purchases by households. Further information on measuring gross domestic product (GDP) can be found in the Guide to the UK National Accounts and more quality and methodology information is available in the Gross domestic product (GDP) QMI.

Important quality information

There are common pitfalls in interpreting data series, and these include:

• expectations of accuracy and reliability in early estimates are often too high
• revisions are an inevitable consequence of the trade-off between timeliness and accuracy
• early estimates are based on incomplete data

Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error”.

Many different approaches can be used to summarise revisions; the “Accuracy and reliability” section in the Gross domestic product (GDP) Quality and Methodology Information analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.

GDP estimates for Quarter 4 (Oct to Dec) 2021 are subject to more uncertainty than usual as a result of the challenges we faced estimating GDP in the current conditions. Differences in the methods for estimating the output of health and education services across different countries mean GDP may be less internationally comparable during the coronavirus (COVID-19) pandemic and recovery than usual, so should be made with increased caution. For more information, please refer to our recently published blog.

System of National Accounts consultations

As part of an update to the System of National Accounts, the United Nations (UN) are in the process of consulting on several areas being considered for improvement. Previous and live consultations can be found on the UN Statistics Division website. If you would like to discuss any of these consultations with the Office for National Statistics (ONS), please contact us at sna.consultations@ons.gov.uk. Bodies outside the UK National Statistical System are also free to respond to the consultations themselves.