GDP first quarterly estimate, UK: October to December 2023

• UK gross domestic product (GDP) is estimated to have fallen by 0.3% in Quarter 4 (Oct to Dec) 2023, following an unrevised fall of 0.1% in the previous quarter.

• While the economy has now decreased for two consecutive quarters, across 2023, GDP is estimated to have increased by 0.1% compared with 2022.

• In output terms in Quarter 4 2023, there were falls in all three main sectors in the latest quarter with declines of 0.2% in services, 1.0% in production, and 1.3% in construction output.

• In expenditure terms, there was a fall in the volume of net trade, household spending and government consumption in Quarter 4 2023, partially offset by an increase in gross capital formation.

• This release includes revisions to periods Quarter 1 (Jan to Mar) to Quarter 3 (July to Sept) 2023, where growth in Quarter 1 2023 has been revised down by 0.1 percentage points, while total GDP in Quarter 2 (Apr to June) and Quarter 3 2023 are unrevised.

• Historically, the absolute average revision between the initial quarterly GDP estimate and the estimate three years later is 0.2 percentage points, when more detailed information is available through the comprehensive annual supply and use balancing process.

Head of National Accounts Craig McLaren explains the latest GDP findings in our video.

UK real gross domestic product (GDP) is estimated to have fallen by 0.3% in Quarter 4 (Oct to Dec) 2023. This follows an unrevised estimated fall of 0.1% in the previous quarter. Across Quarter 3 (July to Sept) and Quarter 4 2023, we estimate that the UK economy contracted by a cumulative 0.5%. Compared with the same quarter a year ago, real GDP is estimated to have fallen by 0.2%.

As explained in our Communicating the UK economic cycle methodology, the concept of a ”technical” recession includes two or more consecutive quarters of contracting output. Most experts, as noted in our recent blog, consider other factors in the broader picture while accounting for the latest data, such as the depth, diffusion (how widespread), and duration of the change in GDP.

Also note that early estimates of GDP are subject to revision (positive or negative); for more information, please refer to our articles: Why GDP figures are revised and GDP revisions in Blue book: 2023. The GDP growth vintages are shown in Table 4. In line with the National Accounts Revision Policy, this dataset is open back to Quarter 1 (Jan to Mar) 2023. Figure 1 shows that growth in Quarter 1 2023 has been revised down by 0.1 percentage points, while total GDP in Quarter 2 (Apr to June) and Quarter 3 2023 are unrevised. There have been some revisions to individual components of GDP; for more information, see Section 6: Revisions to GDP.

UK GDP is estimated to have increased by 0.1% in 2023, following growth of 4.3% in 2022. This is the weakest annual change in real GDP since the financial crisis in 2009, excluding the year 2020, which was affected by the coronavirus (COVID-19) pandemic. Data up to 2021 have been reconciled through the supply and use tables (SUTs) framework to produce one coherent estimate of GDP, as explained in our Impact of Blue Book 2023 changes on gross domestic product article.

Estimates of real GDP in 2022 and 2023 have not been fully reconciled in a SUTs framework, so this estimate of real GDP growth in 2023 reflects the average of the output, expenditure and income measures. There can be differences in the three approaches, reflecting data uncertainty at this stage. Statistical discrepancies published in our GDP data tables show how far apart the measures are at this stage in the production cycle (Figure 3). Further information on the three approaches to measuring GDP is discussed at the end of this section.

Nominal GDP is estimated to have fallen by 0.2% in Quarter 4 2023, attributed to a fall in gross operating surplus for corporations. Compared with the same quarter a year ago, nominal GDP is estimated to have increased by 5.0%.

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. 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. For more information on the implied GDP deflator, see our Measuring price changes of the UK national accounts: February 2023 article.

The implied price of GDP rose by 0.2% in Quarter 4 2023, where the quarterly increase is primarily driven by higher prices in exports, government consumption and household consumption. These were partially offset by a fall in the implied price for gross capital formation, as well as an increase in the implied price of imports, which contributes negatively to the GDP implied deflator.

Compared with the same quarter a year ago, there was a continued easing in the GDP implied deflator, which increased by 5.2% (Figure 2).

There have been revisions to the implied deflator from Quarter 1 2023, particularly in Quarter 3 2023, where the implied deflator is estimated to have increased by 0.9%, revised down from the previous estimate of 1.5%. This revision is because of downward revisions in gross capital formation and net trade.

The three approaches to measuring GDP

The three approaches to measuring GDP allow us to confront our data sources within the National Accounts framework. Real GDP is estimated to have increased by 0.1% in 2023 (Figure 3). However, there are differences in the three approaches at this stage in the production cycle. The differences in these approaches across 2022 and 2023 may be for various reasons.

In the output approach, we do not currently have final estimates for intermediate consumption (value of goods and services purchased to be used up in the production of goods and services). Initially, we use turnover and output as a proxy for changes in gross value added (GVA). We assume that the intermediate consumption ratio by industry, calculated in 2021, holds constant into 2022 onwards, such as assuming input costs as a proportion of turnover or output remain fixed. See Section 7 of our Impact of Blue Book 2023 changes to gross domestic product article for more information.

In the expenditure approach, we currently have lower response rates for areas such as the Living Costs and Foods Survey, which underpin our estimates of household consumption. As explained in our GDP quarterly national accounts, UK: July to September 2023 bulletin, the 2022 annual benchmark data for the International Trade in Services Survey (ITIS) is not yet available. This is because we are improving sample methodology and require additional time to quality assure the data. However, the quarterly ITIS data for 2022 and 2023 were included in this dataset.

In the income approach, we currently do not have up to date quarterly information on the gross trading profits of businesses, as these data are collected from HM Revenue and Customs (HMRC) and are available with a lag of approximately two years. We rely on contextual data from other sources to inform these quarterly estimates, described in our Profitability of UK companies Quality and Methodology Information (QMI). There is currently more uncertainty around the compensation of employees figures in this publication because of lower response rates in our Labour Force Survey. We have used additional information from our Pay As You Earn Real Time Information bulletin to help inform the estimates.

Estimates for 2023 will be open for revision as part of our March 2024 quarterly National Accounts publication, where we will have increased data content. In June 2024, 2022 data will be confronted through the SUTs framework for the first time and, as a result, there will be one single estimate of GDP.

In Quarter 4 (Oct to Dec) 2023, output is estimated to have fallen by 0.3%, following an unrevised fall of 0.1% in Quarter 3 (July to Sept) 2023. In Quarter 4 2023 services, production, and construction contributed negatively to growth. Across Quarter 4, 12 out of 20 of the sub-sectors experienced a contraction, up from 10 sub-sectors in the previous quarter.

The services sector is estimated to have fallen by 0.2% in the fourth quarter of 2023, following a fall of 0.2% in Quarter 3 2023. The production sector is estimated to have fallen by 1.0%, following growth of 0.1% in the previous quarter. Construction output fell 1.3% in Quarter 4 2023, following growth of 0.1% in Quarter 3 2023.

Across 2023 as a whole, both services and construction grew by 0.3% and 2.0%, respectively, while there was a 0.3% fall in production output.

Services

We now estimate that services output decreased for three consecutive quarters, with a fall of 0.2% in the latest quarter. Figure 4 shows that there were falls in 8 out of 14 sub-sectors in Quarter 4 2023.

The largest contributor to the fall in total services was a 0.6% fall in the wholesale and retail trade; repair of motor vehicles and motorcycles sub-sector. This was largely because of a 1.3% fall in wholesale trade, except of motor vehicles and motorcycles and a 0.9% fall in retail trade, except of motor vehicles and motorcycles. Our recent Retail sales: December 2023 bulletin shows that December 2023 was the largest monthly decrease in retail sales since January 2021, when coronavirus (COVID-19) restrictions were in place.

Education also contributed negatively to the fall in services in Quarter 4 2023, with a decline of 0.8% partially attributed to a drop in school attendance. We also estimate that other service activities decreased by 2.4%. This is the third consecutive quarterly fall and the largest quarterly decline in this sub-sector since Quarter 1 (Jan to Mar) 2021. The fall in Quarter 4 2023 was mainly driven by a 3.4% fall in other personal services, where we have seen particular weakness in hairdressing and other beauty treatment over the Christmas period compared with usual.

The largest positive contribution to services growth was from administrative and support service activities, which increased by 0.6%, driven by growth of 6.9% in rental and leasing activities.

Overall, consumer-facing services fell by 0.7% in Quarter 4 2023 and this was largely driven by falls in food and beverage service activities and retail trade, except of motor vehicles and motorcycles. This offset an increase in accommodation services, particularly hotels, which performed strongly in Quarter 4 2023. This follows an unrevised fall of 1.0% in consumer-facing services in Quarter 3 2023, which was the largest decline in consumer-facing services since Quarter 1 (Jan to Mar) 2021.

Annual service sector growth for 2023 is estimated at 0.3% with 7 of the 14 service subsectors showing growth across the year. The largest positive contributor was administrative and support service activities, which increased by 5.8% in 2023. However, this was partially offset by a 1.8% fall in wholesale and retail trade; repair of motor vehicles and motorcycles.

Across 2023, the services sector sees revisions for the following reasons, with only Quarter 1 2023 seeing growth revised from our previous publication, including:

• updated input data for the deflator used for telecommunications

• updated seasonal adjustment which now uses a complete year of data for 2023

Production

The production sector is estimated to have decreased by 1.0% in the latest quarter after growth of 0.1% in Quarter 3 2023 (unrevised from our previous publication). This reflects a 1.4% fall in October, despite growth in November (0.5%) and December (0.6%). Further information is provided in our GDP monthly estimate bulletins.

Within production, manufacturing was the largest contributor to the 1.0% fall, with 10 out of the 13 manufacturing sub-sectors performing negatively over this period.

Manufacturing output is estimated to have fallen by 0.9% in Quarter 4 2023 after four consecutive quarters of growth. The largest negative contributors are a 7.0% decline in the manufacture of machinery and equipment n.e.c and a 4.7% fall in the manufacture of rubber and plastics products, and other non-metallic mineral products. However, there were some positive movements in manufacturing, as shown in Figure 5. In particular, the manufacture of transport equipment grew by 1.8%. Anecdotal evidence from the Society of Motor Manufacturers and Traders (SMMT) reported that car manufacturing for December 2023 was up 20.7% compared with the same month last year.

Elsewhere in the production sector, there was a 3.0% fall in mining and quarrying, which fell for the sixth consecutive quarter and a 2.6% fall in electricity, gas, steam and air conditioning supply. However, water supply; sewerage, waste management and remediation activities increased 0.5% on the quarter.

Annual production output is estimated to have fallen 0.3% in the year 2023. This was caused mostly by a 14.3% fall in mining and quarrying as well as falls in water supply; sewerage, waste management and remediation activities; and electricity, gas, steam and air conditioning supply, despite manufacturing showing 1.2% growth in 2023.

Across 2023, the production sector sees revisions to growth, mainly driven by manufacturing. Overall, the revisions to production reflect:

• late and updated monthly business survey data, particularly for the manufacturing sub-sector

• updated seasonal adjustment, accounting for a full year’s worth of data for 2023

Construction

Construction output is shown to have fallen by 1.3% in Quarter 4 2023 following growth of 0.1% (previously estimated to be 0.4%).

The fall reflects a fall in new work of 5.0%, though there was growth of 4.0% in repair and maintenance. Within new work, private housing sees its fifth consecutive quarterly decline, falling 8.0% in the latest quarter.

Revisions to construction from Quarter 1 2023 are attributed to new survey data and improvements to repair and maintenance deflators.

In the year 2023, construction is estimated to have grown 2.0%. Further detail on construction output can be found in our Construction output in Great Britain releases.

There was a fall in the volume of net trade, household spending and government consumption in Quarter 4 (Oct to Dec) 2023, partially offset by an increase in gross capital formation (Figure 6).

Household consumption

There was a fall of 0.1% in real household expenditure in Quarter 4 2023, following a downwardly revised fall of 0.9% in Quarter 3 (July to Sept) 2023 (previously estimated as a 0.5% fall). In 2023, household consumption is estimated to have increased by 0.3%, following an increase of 4.8% in 2022.

Within household consumption, the largest contributions to the fall in the latest quarter were from lower spending on recreation and culture, miscellaneous goods and services, and transport. Net tourism contributed positively to growth in the latest quarter. Information on how we measure net tourism is provided in our National Accounts articles: Treatment of tourism in the UK National Accounts article.

Revisions in household consumption reflect updated data on transport, housing, and water, gas and electricity spending. There are also revisions to net tourism because of updated International Passenger Survey data (see our Definitions and conventions for UK household final consumption expenditure methodology). While household consumption sees revisions because of net tourism, these are offset within trade and, therefore, there is no impact on the gross domestic product (GDP) aggregate.

Consumption of government goods and services

Real government consumption expenditure fell by 0.3%, following a revised increase of 1.1% in Quarter 3 2023 (previously estimated to have increased 0.8%). In 2023, government consumption is estimated to have increased by 0.6%, following an increase of 2.3% in 2022.

The fall in government consumption in the latest quarter mainly reflects lower activity in education and health. The fall in health may reflect lower activity because of industrial action across the quarter. Further information is provided in our GDP monthly estimate bulletins.

Revisions to government consumption reflect updated data on public administration and defence, and health.

Gross capital formation

Gross fixed capital formation (GFCF) is estimated to have increased by 1.4% in the latest quarter, following a revised fall of 1.4% in the previous quarter (previously estimated as a 1.6% fall). Growth in the latest quarter was driven by increases in other buildings and structures. Within gross fixed capital formation, business investment is estimated to have increased by 1.5%, following a 2.8% fall in Quarter 3 2023.

Across 2023 as a whole, gross capital formation is estimated to have increased by 2.9% with a 6.1% increase in business investment. This reflects strong growth in Quarter 1 2023 as businesses brought forward investment in response to the super-deduction allowance expiring on 31 March 2023, as well as a large increase in transport investment (particularly aircraft imports from the United States) in Quarter 2 (Apr to June) 2023.

There have been revisions to the path of business investment in 2023, reflecting revised survey data and the latest seasonal adjustment.

Excluding the alignment and balancing adjustments, early estimates show that inventories increased by £1.8 billion in Quarter 4 2023. In current price terms, early estimates show that there was a fall of £3.6 billion in the latest quarter.

Net trade

The UK's trade deficit for goods and services was 1.6% of nominal gross domestic product (GDP) in Quarter 4 2023. However, this includes non-monetary gold, which is an erratic series so it can be useful to exclude this from the trade balance. Excluding non-monetary gold, the trade deficit was 2.2% of nominal GDP in Quarter 4 2023 (Figure 7).

Export volumes fell by 2.9% in the latest quarter, following a fall of 0.8% in Quarter 3 2023. The fall was driven by a 6.0% decline in services exports, which offset a 0.8% increase in goods exports.

The decline in services exports was caused mainly by other business services (within this legal, accounting and management consulting, and advertising, market research and public opinion polling services) and travel.

The increase in goods exports was mainly driven by large movements in non-monetary gold. However, this series also appears within gross capital formation (GCF) as valuables, and so the effect is GDP neutral. Elsewhere there were falls in chemicals and miscellaneous manufactures.

Import volumes fell by 0.8% in the latest quarter, following a fall of 1.8% in Quarter 3 2023. The decline in the latest quarter was driven by a 0.7% fall in goods and 0.9% in services.

The fall in goods imports was driven by declines in miscellaneous manufacturers, particularly clothing and other consumer manufactures. The fall in services imports was mainly because of declines in other business services, particularly in advertising, market research and public opinion polling services.

Nominal gross domestic product (GDP) fell by 0.2% in Quarter 4 (Oct to Dec) 2023, following revised growth of 0.7% in Quarter 3 (July to Sept) (previously estimated as 1.4%). This is the weakest growth in nominal GDP since Quarter 2 (Apr to June) 2020.

The quarterly fall was driven by a decline in gross operating surplus of corporations, which offset increases in compensation of employees, taxes less subsidies and other income (Figure 8).

Compensation of employees increased by 0.5% in Quarter 4 2023, driven by an increase of 0.6% in wages and salaries and an increase of 0.2% in employers’ social contributions. In 2023, compensation of employees is estimated to have increased by 7.1%, following growth of 7.5% in 2022, mainly because of increases in private sector wages and salaries. There have been revisions to estimates of compensation of employees across 2023 because of updated public sector data and new re-weighted labour force survey data, described in our Impact of reweighting on Labour Force Survey key indicators article. Note that there is more uncertainty around the compensation of employees figures in this publication because of lower response rates in the Labour Force Survey. We have used additional information from our Pay As You Earn Real Time Information bulletin to help inform the estimates.

Early estimates show that taxes less subsidies increased by 1.0% in Quarter 4 2023, following a revised increase of 3.9% in Quarter 3 2023 (previously estimated to be 5.9%). Growth in the latest quarter was driven by a 1.1% increase in taxes (mainly Value Added Tax (VAT)) and a 2.6% increase in subsides. Overall, taxes less subsidies fell by 0.2% in 2023, reflecting a large increase in subsidies because of the Energy Price Guarantee scheme and the Energy Bill Relief Scheme as described in our GDP quarterly national accounts bulletin.

Total gross operating surplus (GOS) of corporations excluding the alignment adjustment fell by 2.1% (Table 3), with falls in both non-financial corporations and financial corporations GOS. Within GOS of corporations, there continues to be uncertainty around the full impacts of the Energy Bill Relief and Energy Price Guarantee schemes that affect the first half of 2023.

In line with our National Accounts Revisions Policy, the dataset is open to revision back to Quarter 1 (Jan to Mar) 2023 as part of this publication. The revised estimates of average real gross domestic product (GDP) compared with the first estimate are shown in Figure 1, while Table 4 shows quarter-on-quarter growth at different publication vintages for real GDP. Revision triangles for GDP and components are available in our GDP quarterly national accounts datasets.

The revisions to quarter-on-quarter growth for the components of GDP are shown in Table 5. This release includes the processing of new and revised source data, and a review of GDP balancing.

There are also revisions in this release because of the replacement of forecasts with actual survey or external source data, such as energy data from Department for Energy Security and Net Zero (DESNZ) and new seasonal adjustment factors.

Reaching the GDP balance

The different data content and quality of the three approaches (the output approach, the expenditure approach and the income approach) dictate 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. To obtain the best estimate of gross domestic product (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.

Quarterly GDP is a balanced measure of the three approaches, while the GDP monthly estimate focuses on gross value added (GVA) and output as a proxy for GDP. This results in data differences (in both levels and growths terms) between our quarterly publications (average GDP) and our GDP monthly estimate bulletin (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 on The National Archives.

Alignment adjustments, found in Table M of our 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 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 the change in GDP, and where the data content is at its lowest.

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 7. The resulting series should be considered accordingly.

Office for Statistics Regulation Revisions of estimates of UK GDP review

The Office for Statistics Regulation (OSR) have completed a review of the practices around the preparation and release of information about revisions to estimates of GDP in our Impact of Blue Book 2023 article released on 1 September 2023, as announced on 6 September 2023 on the OSR website. The outcome of this review can also be viewed on the OSR website. This review covered:

• processes and quality assurance in making revisions to GDP

• potential improvements to early estimates of GDP enabled through enhanced access to data

• communication of revisions to GDP, the story behind the most recent set of revisions in particular, and uncertainty in early estimates of GDP

We have already started work looking into the recommendations of this review and have set out our plans on how we will improve the way we communicate uncertainty.

We published a response to the OSR review into GDP in January 2024, which was positively received by the OSR.

Net trade

HM Revenue and Customs (HMRC) implemented a data collection change affecting data on goods exports from Great Britain (GB) to the EU in January 2021, and data on goods imports from the EU to GB in January 2022. For more information, see HMRC's Methodology changes to trade in goods statistics from March 2022 article. We have applied adjustments to our estimates of goods imports from the EU for 2021 to reflect this data collection change, which brought imports and exports statistics onto a like-for-like basis in 2021, as detailed in our Trade in goods: Adjustments to 2021 EU imports estimates, by chapter dataset.

The full time series for goods imports from and exports to the EU contains a discontinuity from January 2021 resulting from the move from Intrastat to customs declarations, as detailed in our Impact of trade in goods data collection changes on UK trade statistics: adjustments to 2021 EU imports estimates article. We are continuing to work with HMRC to consider possible options to account for this discontinuity.

Separately, in 2021, the use of Staged Customs Controls (SCC) allowed customs declarations to be reported up to 175 days after the date of import for imports of non-controlled goods from the EU to GB. The UK government introduced full customs controls in January 2022, while July 2022 marked the first full month of data where delayed customs declarations submitted under SCC could not be included. Temporary arrangements still apply for imports of goods from Ireland to GB. In our article, Impact of trade in goods data collection changes on UK trade statistics: further update on Staged Customs Controls published on 3 July 2023, we presented analysis on the impact of SCC on trade in goods data for imports from the EU to GB in 2022. We have previously adjusted for the impact of SCC and have published the article Impact of trade in goods data collection changes on UK trade statistics: adjustments to 2022 EU imports estimates, providing a detailed breakdown of the impact of these adjustments.

In our December 2023 GDP quarterly national accounts bulletin, we incorporated a number of better quality but less timely annual datasets for 2022. However, annual data for 2022 from the International Trade in Services (ITIS) Survey has not been included in this dataset, as we have been developing and improving methodology for the sample and require additional time to quality assure the data. These will be incorporated in our June 2024 quarterly national accounts bulletin. Quarterly ITIS data for 2022 are included our current dataset.

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 our Guide to the UK National Accounts, and more Quality and Methodology Information (QMI) is available in our 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 often 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 our GDP QMI analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.