GDP first quarterly estimate, UK: October to December 2022

• The first quarterly estimate of UK real gross domestic product (GDP) shows there was no growth in Quarter 4 (Oct to Dec) 2022.

• Monthly estimates published today (10 February 2023) show that GDP fell by 0.5% in December 2022, following an unrevised growth of 0.1% in November 2022.

• In output terms, the services sector slowed to flat output on the quarter driven by falls in the education, and transport and storage sub-sectors.

• Elsewhere, growth of 0.3% in construction was offset by a 0.2% fall in the production sector in Quarter 4 2022.

• In expenditure terms, growth in real household expenditure, government expenditure and gross fixed capital formation was offset by a fall in international trade flows in the fourth quarter.

• Compared with the same quarter a year ago, the implied GDP deflator rose by 6.6%, primarily reflecting higher cost pressures faced by households.

• GDP increased by an estimated 4.0% in 2022, following a 7.6% increase in 2021.

The first quarterly estimate of UK real gross domestic product (GDP) shows there was no growth in Quarter 4 (Oct to Dec) 2022. In line with the National Accounts Revisions Policy, revisions are open back to Quarter 1 (Jan to Mar) 2022 as part of this publication. There have been some small revisions to the quarterly path of real GDP, specifically Quarter 1 2022 and Quarter 3 (July to Sept) 2022, while there have been some revisions to individual components of GDP. For more information, see Section 6: Revisions to GDP.

The level of quarterly GDP in Quarter 4 2022 is now 0.8% below its pre-coronavirus (COVID-19) level (Quarter 4 2019; Figure 1), while GDP is estimated to have increased by 4.0% in 2022.

Early estimates of GDP are subject to revision. For more information please refer to our Communicating the UK economic cycle methodology.

As published today (10 February 2023) in our GDP monthly estimate, UK bulletin, GDP is estimated to have fallen by 0.5% in December 2022, following an increase of 0.5% in October 2022 and an increase of 0.1% in November 2022.

Nominal GDP is estimated to have increased by 1.3% in Quarter 4 2022, and was 7.0% higher than the same quarter a year ago.

The implied GDP deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP. It is important to note that the GDP deflator covers the whole of the domestic economy, not just consumer spending, and also reflects the change in the relative price of exports to imports.

The implied price of GDP rose by 1.3% in Quarter 4 2022, which was primarily driven by higher price pressures for household consumption (1.2%). In contrast, import prices fell in Quarter 4 2022.

The implied price of GDP was 6.6% higher in Quarter 4 2022 than the same quarter a year ago. This has been driven by strong rises for the price of household consumption, while there have been large price movements in internationally traded goods and services (Figure 2). Further information on the price movements of trade is discussed in our article, The purchasing power of GDP, UK: 2022.

In Quarter 4 (Oct to Dec) 2022, services output was flat, production output fell by 0.2% and construction output rose by 0.3%. Across all of output, there were increases in 8 of the 20 sub-sectors on the quarter, while 12 sub-sectors saw a decrease on the quarter. There have been some revisions to earlier quarters in 2022 for some industries.

Services

There was no change in services output produced in Quarter 4 2022, which is a slowing from the 0.2% increase in the previous quarter. Overall, the services sector increased by 5.5% in 2022.

Figure 3 shows that there was a mixed performance for the service sub-sectors in the fourth quarter, with growth in 6 out of the 14 sub-sectors offset by falls in 8. The largest positive contribution to growth was from administrative and support service activities, particularly travel agents, which increased by 14.8% in Quarter 4 2022 following a fall in the previous quarter.

However, this was largely offset by declines in education (1.6%) and transportation and storage output (2.4%). For further information on the fall in education please see Section 4: Expenditure. Within the transport and storage sub-sector there were falls from postal and courier activities as well as rail transport, as both industries saw strikes taking place across the fourth quarter. While the direct impact of the strikes in these industries can be seen in the scale of the falls, we are not able to isolate the impact of these strikes from other factors across the wider economy. However, there was anecdotal evidence to suggest this industrial action had an impact across a wide range of industries. For further information, please see our GDP monthly estimate, UK statistical bulletin.

There was an increase in wholesale and retail trade; repair of motor vehicles and motorcycles on the quarter. Although within this, retail trade declined over this period, with retailers telling us that consumers are cutting back on spending because of increased prices and affordability concerns. For more information, see our Retail sales, Great Britain: December 2022 bulletin.

Production

Production output fell by 0.2% in Quarter 4 2022, which is the sixth consecutive quarter of contraction. Overall, the production sector saw a 3.6% decline in 2022.

The fall in production output in the latest quarter was driven by declines in electricity, gas, steam and air conditioning supply (1.3%) and mining and quarrying (1.6%). The declines in electricity, gas, steam and air conditioning supply in the latest quarter continue the falling trend from the previous quarter. This mostly reflects falls in energy volumes, as shown in the energy trends data produced by Department for Energy Security and Net Zero (DESNZ), which might reflect changes in business and consumer behaviour in response to higher energy prices.

The manufacturing sector was broadly flat in the fourth quarter (Figure 4). There were declines in 10 out of the 13 sub-sectors, with the largest negative contributions from the manufactures of chemicals and chemical products; and basic metals and metal products.

These falls were offset by increases in the manufacture of basic pharmaceutical products and pharmaceutical preparations, and the manufacture of transport equipment.

Construction

Construction output rose by 0.3% in Quarter 4 2022, a slowing from the first half of this year. The main positive contributions in Quarter 4 2022 came from infrastructure, which grew 6.5%. This is the first positive quarterly growth in infrastructure since Quarter 3 (July to Sept) 2021 and the strongest since Quarter 2 (Apr to June) 2021 (6.5%).

The main negative contributions in Quarter 4 2022 came from private housing (both new work and R&M) as both saw quarterly falls of 3.2% and 3.5%, respectively. In private housing R&M, this is the first quarterly fall since Quarter 2 2022 and may reflect the cost of living challenges and the lack of demand and funds in this area. Further detail on construction growth rates can be found in our Construction output in Great Britain: December 2022, new orders and Construction Output Price Indices, October to December 2022.

There was a modest increase of 0.1% in private consumption in Quarter 4 (Oct to Dec) 2022, while there was also higher business and government investment on the quarter (Figure 5). However, early estimates show that businesses were de-stocking their levels of inventories in the final quarter of the year, while there was a decline in the volume of net trade in Quarter 4 2022 with a fall in exports.

Private consumption

Within private consumption, there was a modest increase in real household expenditure of 0.1% in Quarter 4 2022, following a 0.4% contraction in the previous quarter, as real household incomes have been squeezed by higher inflation over the second half of 2022.

There were continued declines in household goods and services, food and non-alcoholic drink, and recreation and culture. In current price terms, household expenditure rose by 1.3% on the quarter, as recent inflationary pressures increased the nominal value of this spending. The implied price of household expenditure increased by 9.1% when compared with Quarter 4 2021.

Consumption of government goods and services

Real government consumption expenditure increased by 0.8% in Quarter 4 2022, including a pickup in health volumes overall on the quarter. This reflected an increase in the volume of spending on public administration and defence and health. The health volumes increase reflected some effects of higher number of coronavirus (COVID-19) vaccinations, including the effects of the autumn booster campaign. However, there was a fall in December 2022, including a large fall in GP services and a second consecutive fall in the NHS Test and Trace and vaccine programmes.

There was also a fall in education volumes in the final quarter of the year, reflecting lower attendance throughout the quarter, particularly in December, which saw a significant drop in attendance levels in the run-up to Christmas.

Gross capital formation

There was a pickup in gross fixed capital formation (GFCF), which increased by 1.5% in Quarter 4 2022. This reflected increases in business and government investment on the quarter, partially offset by a fall in dwellings investment. The 4.8% increase in business investment on the quarter leaves it now equal to its pre-coronavirus pandemic level (Figure 6). There was a fall in the implied price of business investment on the quarter, pointing to some softening in these price pressures.

Note that balancing and alignment adjustments are typically applied to the inventories component to help balance the expenditure approach to average gross domestic product (GDP). Alignment adjustments typically have a target limit of plus or minus £3,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed. For Quarter 4 2022, the alignment adjustment is larger than normal (Table 2). This is a result of challenges in balancing GDP, more detail can be found in Section 10: Measuring the data. 

Excluding the alignment and balancing adjustments, early estimates show that inventories fell by £6.9 billion (Table 2). The fall in inventories was driven by reductions particularly for retail and manufacturing industries. Anecdotal evidence shows that the retail sector showed reductions in stock because of reported lower demand resulting from cost of living pressures on disposable incomes. For manufacturing industries, these were impacted by a lack of availability in raw materials.

Net trade

The UK's departure from the EU has impacted the way trade in goods is recorded. In January 2021, data collection for goods exports from Great Britain to the EU moved from the Intrastat survey to customs declarations. That was followed a year later (January 2022) by a move from Intrastat to customs declarations for imports of goods from the EU to Great Britain. The Office for National Statistics (ONS) communicated that both moves impacted the trade statistics time series and we recently applied adjustments to imports of goods from the EU in 2021, to bring imports and exports on a like-for-like basis for that year. We are currently looking closely at whether further adjustments can be made to the back series to create a consistent historical series. For more information, see our Impact of trade in goods data collection changes on UK trade statistics: 2020 to 2022 article, and our Impact of trade in goods data collection changes on UK trade statistics: adjustments to 2021 EU imports estimates article.

In addition, when the requirement for customs declaration was introduced for imports of goods to Great Britain from the EU in January 2022, a new policy of Staged Customs Controls was implemented. This allowed importers to delay their customs declarations up to 175 days from the date the goods entered the country in 2021. It is possible that some double counting occurred, with imports in the second half of 2021 recorded by the Intrastat Survey, then some appearing again on customs declarations in the first half of 2022. The ONS is working closely with HM Revenue and Customs, analysing trends at product level to understand what adjustments to 2022 imports estimates may be needed. Our Trading places: How we are producing consistent estimates of trade figures following the UK’s EU exit blog, published today, gives some more detail.

The UK's trade deficit for goods and services improved to 1.3% of nominal GDP in Quarter 4 2022 (Figure 7). However, there have been large movements in non-monetary gold over the last quarter, which can be volatile. Excluding non-monetary gold, the trade deficit was 4.2% of nominal GDP in Quarter 4 2022.

Export volumes fell by 1.0% in the latest quarter, driven by a fall of 3.1% in services exports. The fall in services exports was driven mainly by Other Business Services, with Insurance & Pension Services, Financial Services, and Intellectual property all also contributing to the decrease. Elsewhere goods exports increased by 0.9% in Quarter 4 2022, though much of this was driven by increases in unspecified goods because of non-monetary gold. Import volumes increased by 1.5% in the latest quarter, driven by a 2.5% increase in goods imports driven mainly by machinery and transport equipment and chemicals.

Nominal gross domestic product (GDP) rose by 1.3% in Quarter 4 (Oct to Dec) 2022, and increased by 7.0% relative to the same quarter last year. The quarterly rise was driven by growth in gross operating surplus and compensation of employees, while taxes less subsidies detracted from growth (Figure 8).

Compensation of employees increased by 1.1% in Quarter 4 2022, driven by a rise in wages and salaries of 1.7% and partially offset by a fall of 2.0% in employers' social contributions.

Early estimates show that taxes less subsidies fell by 22.5% in Quarter 4 2022, driven by a large increase in subsidies because of the energy price guarantee scheme and the energy bill relief scheme. In October 2022, the Office for National Statistics (ONS) announced that the Energy Price Guarantee scheme had been classified as a subsidy on products from central government to energy suppliers in the non-financial corporations sector in the UK. For more information, see our Energy Price Guarantee classification. The equivalent support scheme for businesses and non-domestic customers was announced as the Energy Bill Relief Scheme. This scheme will provide a discount on gas and electricity unit prices and the UK government will compensate the suppliers for this reduction. In October 2022, the ONS announced that the scheme had also been classified as a subsidy on products from central government to energy suppliers in the non-financial corporations sector in the UK. For more information, see our Energy Bill Relief Scheme classification. This quarter's figure is an initial indicative estimate, which will be revised over the coming months as firmer data become available.

Total gross operating surplus (GOS) of corporations increased by 15.2% in Quarter 4 2022. However, excluding the alignment adjustment, corporations' GOS increased by 6.2% (Table 3), reflecting the energy price guarantees schemes. However, data content for this component is low at this stage in the GDP publication model, for more information see our Introducing a new publication model for GDP article. This is reflected in the larger than normal Quarter 4 2022 alignment adjustment (Table 2), as well as challenges in balancing GDP. More detail can be found in Section 10: Measuring the data.

In line with the National Accounts Revisions Policy, the dataset is open to revision back to Quarter 1 (Jan to Mar) 2022 as part of this publication. The revised estimates of average real gross domestic product (GDP) compared with the first estimate are shown in Figure 9.

The revisions to quarter-on-quarter growth for the components of GDP are shown in Table 4. The release includes the processing of annual data for 2022. 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 gross domestic product (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 gross domestic product (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 takes 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 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. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed as explained in our recent article, Recent challenges of balancing the three approaches of GDP. Our standard practice is to prefer that the alignment adjustment be out of tolerance rather than over-adjust individual GDP components to achieve a balance. This is most likely to occur in the latest quarter where the constraints are larger, where we must align to the output estimate for that change in GDP, and where the data content is at its lowest.

In this quarter, the alignment adjustment, used to align expenditure and income to average GDP, is larger than normal (Table 2 and Table 3). This approach preserves the component-level movements and shows the level of challenge and uncertainty currently within the expenditure approach to GDP. Work will continue with a focus on the expenditure and income approaches to GDP, and we will continue to review this over the coming months as and when more information becomes available.

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 6. 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 2022 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 blog, Why has UK GDP fallen so sharply in the pandemic?