Gross Domestic Product Preliminary Estimate: Quarter 2 (Apr to June) 2015

• Change in gross domestic product (GDP) is the main indicator of economic growth. GDP is estimated to have increased by 0.7% in Quarter 2 (Apr to June) 2015 compared with growth of 0.4% in Quarter 1 (Jan to Mar) 2015.

• Output increased in 2 of the main industrial groupings within the economy in Quarter 2 (Apr to June) 2015. Services increased by 0.7% and production increased by 1.0%. Construction growth was flat. In contrast agriculture decreased by 0.7%.

• GDP was 2.6% higher in Quarter 2 (Apr to June) 2015 compared with the same quarter a year ago.

• In Quarter 2 (Apr to June) 2015, GDP was estimated to have been 5.2% higher than the pre-economic downturn peak of Quarter 1 (Jan to Mar) 2008. From the peak in Quarter 1 (Jan to Mar) 2008 to the trough in Quarter 2 (Apr to June) 2009, the economy shrank by 6.0%.

• The preliminary estimate of GDP is produced using the output approach to measuring GDP. At this stage, data content is less than half of the total required for the final output estimate. The estimate is subject to revision as more data become available, but these revisions are typically small between the preliminary and third estimates of GDP.

• All figures in this release are seasonally adjusted.

About the preliminary estimate of GDP

Change in GDP is the main indicator of economic growth. The preliminary estimate of GDP is based solely on the output approach to measuring GDP and uses the same data that feed into the Index of Services, Index of Production and Output in the Construction Industry datasets. The growth estimates within this release are created from short-term measures of output and should be considered alongside medium and long-term patterns in the series to give a more comprehensive picture of the main movements (further information on longer-term patterns of GDP, including a comparison with other countries, can be found in the Economic context section).

The output approach measures gross value added (GVA) at a detailed industry level before aggregating to produce an estimate for the whole economy. GDP (as measured by the output approach) can then be calculated by adding taxes and subtracting subsidies (both only available at whole economy level) to this estimate of total GVA. However, as there is no information available on taxes and subsidies at this stage, the quarterly growth for output GVA is taken as a proxy for GDP growth (more information on creating the preliminary estimate of GDP is available on the Methods and sources page of our website).

In the second estimate of GDP and the quarterly national accounts, the output GVA and GDP estimates are balanced with the equivalent income and expenditure approaches to produce headline estimates of GVA and GDP. Further information on all 3 approaches to measuring GDP can be found in the Short guide to national accounts (136.8 Kb Pdf).

All data in this bulletin are seasonally adjusted estimates and have had the effect of price changes removed (in other words, the data are deflated). Further information on some of the main concepts (including seasonal adjustment and deflation) underlying the estimates can be found in background note 8.

The quality of the estimate of GDP

The preliminary estimate of GDP is produced around 25 days after the end of the quarter to provide a timely estimate of GDP and at this stage the data content of this estimate is around 44% of the total required for the final output-based estimate. The methods for producing the preliminary GDP estimate use monthly data for the first 2 months in the quarter (April and May) and forecasts for estimating the third month (June), which incorporate early survey responses where available. More information about the data content for this release can be found in the Assumptions made for June 2015 section and the background notes. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The estimate is subject to revisions as more data become available, but between the preliminary and third estimates of GDP, revisions are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal.

All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. The estimate of GDP, however, is currently constructed from a wide variety of data sources, some of which are not based on random samples, and as such it is very difficult to measure the sampling error. While development work continues in this area, like all other G7 national statistical institutes, we do not publish a measure of the sampling error associated with GDP (more information on the quality of the output approach to measuring GDP can be found on the Methods and sources page on our website). It should be noted that we are continually working on methodological changes to improve the accuracy of the output approach to measuring GDP. As part of the GDP Continuous Improvement Programme, articles are regularly published on the Statistical continuous improvement page, which provide detailed updates of the work carried out so far.

On 11 December 2014, the UK Statistics Authority announced its decision to suspend the designation of Construction Price and Cost Indices (CPCIs) due to concerns about the quality of these deflators. As a result, the UK Statistics Authority also suspended the designation of Output and New Orders as National Statistics in respect of the Code of Practice for Official Statistics.

We took over responsibility for the publication and development of the CPCIs from the Department for Business Innovation & Skills on 1 April 2015. On 8 May 2015, we published an article describing the proposed interim solution for construction price and cost indices (CPCIs) (254.5 Kb Pdf) to replace the statistical models that had been used in the production of chained volume measures (CVMs) for output in the construction industry since Quarter 3 (July to Sept) 2014 and to provide an ongoing source of data from Quarter 1 (Jan to Mar) 2015 onwards. This interim solution is used within this release.

The preliminary estimate of GDP focuses on the growth in output between 2 consecutive quarters (in this release Quarter 1 (Jan to Mar) 2015 and Quarter 2 (Apr to June) 2015). GDP increased by 0.7% in the second quarter of 2015.

The contribution an industry grouping makes to GDP quarterly growth is dependent on the change in that industry grouping and its weight within the output approach to measuring GDP. The current 2011 based weights are: services 78.4%; production 14.6%; construction 6.4%; and agriculture 0.6%.

Services increased by 0.7%, contributing 0.5 percentage points to Quarter 2 (Apr to June) 2015 GDP growth (as seen in Figure 1). This followed an increase of 0.4% in Quarter 1 (Jan to Mar) 2015. In the latest quarter there were increases in all 4 of the main services aggregates (distribution, hotels and restaurants; transport, storage and communication; business services and finance; government and other services). Growth in business services and finance increased from 0.1% growth in Quarter 1 (Jan to Mar) 2015 to 0.8% in Quarter 2 (Apr to June) 2015. This was the main reason behind the increase in services growth between the 2 quarters.

There was a upward contribution (0.14 percentage points) from the production industries; these industries grew by 1.0%, with mining and quarrying increasing by 7.8% following a decrease of 0.5% in Quarter 1 (Jan to Mar) 2015 and water and waste management increasing by 4.8% following a rise of 0.2% in Quarter 1 (Jan to Mar) 2015. Evidence from the Department of Energy and Climate Change (DECC) suggested the recent tax changes announced in the March budget could be a contributing factor to the rise in mining and quarrying. Partially offsetting these increases was a fall of 2.9% in energy supply following an increase of 2.8% in Quarter 1 (Jan to Mar) 2015 and a fall of 0.3% in manufacturing following an increase of 0.1% in Quarter 1 (Jan to Mar) 2015.

Construction output made no contribution to Quarter 2 (Apr to June) 2015 GDP growth. This follows a fall of -0.2% in Quarter 1 (Jan to Mar) 2015. The monthly data published in the Output in the Construction Industry - May 2015 release showed falls in both April 2015 and May 2015 when compared with the previous months.

As seen in Figure 2, GDP in the UK grew steadily during the 2000s until a financial market shock affected UK and global economic growth in 2008 and 2009. Economic growth resumed towards the end of 2009, but generally at a slower rate than the period prior to 2008 (Figure 2). This growth was also erratic, with several quarters between 2010 and 2012 recording stagnant or declining GDP. This 2-year period coincided with special events (for example severe winter weather in Quarter 4 (Oct to Dec) 2010 and the Diamond Jubilee in Quarter 2 (Apr to June) 2012) that are likely to have affected growth. Since 2013, GDP has grown steadily, passing its pre-downturn peak in Quarter 3 (July to Sep) 2013.

The 0.7% increase in GDP growth in Quarter 2 (Apr to June) 2015 implies that GDP per head would be broadly equal to the pre-economic downturn peak in Quarter 1 (Jan to Mar) 2008. As usual, data underlying the GDP per head calculation and a time series will be published in the Second Estimate of GDP on 28 August 2015.

Figure 3 shows the industry breakdown of GDP from 2002. Up until the downturn, services in the UK grew steadily, while production output was broadly flat over the same period. Construction activity grew strongly between 2002 and 2004 and although there was a temporary decline in the mid-2000s, this was reversed by the end of 2007.

GDP and all of its components are referenced to 2011, making the average index in 2011 equal to 100. It is for this reason that Figure 3 shows all components converging in 2011.

Industries have shown differing trends following the recent economic downturn. This is illustrated in Figure 4, which shows the path of GDP and its components (excluding agriculture, but including manufacturing, which is a sub-component of production), relative to their level in Quarter 1 (Jan to Mar) 2008. The construction and production industries were more acutely affected by the deterioration in economic conditions. Following the downturn, the services industries generally grew steadily, albeit slowly, with output exceeding its pre-downturn peak in Quarter 3 (July to Sep) 2011.

Production and construction activity began to grow in 2010 but neither industry sustained this growth. Production output fell in both 2011 and 2012 to below levels seen at the height of the downturn in 2009. Construction output sharply decreased in 2012, and was close to its 2009 trough after further contraction in Quarter 1 (Jan to Mar) 2013. Construction output in 2014 as a whole was 9.5% higher than 2013, however, a fall in growth in Quarter 1 (Jan to Mar) 2015 and flat growth in Quarter 2 (Apr to June) 2015 means output has recently stagnated. Although there has generally been growth across all major components of GDP since the start of 2013, the service industries remain the largest and steadiest contributor to economic growth (Table 1) and the only component of GDP where output has exceeded its pre-downturn peak.

Our preliminary estimate of GDP is one of the earliest GDP releases to be published internationally. As a result, comprehensive cross country GDP comparisons cannot yet be made for Quarter 2 (Apr to June) 2015.

However, GDP data are widely available for most major economies up to the first quarter (Jan to Mar) of 2015, and a comparison of this information is shown in Figure 6. Each country has been indexed to Quarter 1 (Jan to Mar) 2008 so that a comparison of recoveries since the global downturn can be made between countries. Cross country GDP data are publicly available from the Organisation for Economic Co-operation and Development (OECD).

The level of GDP in the UK took until Quarter 3 (July to Sep) 2013 to surpass its pre-downturn peak. Figure 5 indicates that the UK recovery took longer than some other countries in the G7. This is in part due to the nature of the downturn in the UK; GDP fell to a greater extent and as a result has taken longer to recover.

European economies have continued to struggle since the euro area sovereign debt crisis in 2011, with Italy particularly affected. In Quarter 1 Jan to Mar 2015, GDP growth in France was positive at 0.6% following negative growth in the first half of 2014. Meanwhile, GDP in both Germany and Italy increased by 0.3% on the quarter, but Italy continued to show little growth compared to the same quarter of the previous year at 0.1%. GDP in Italy still remains 9.3% below the level observed in Quarter 1 Jan to Mar 2008.

Agriculture

Agriculture output decreased by 0.7% in Quarter 2 (Apr to June) 2015, following a decrease of 2.3% in the previous quarter. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, agriculture output decreased by 0.4%.

Production

The index of production increased by 1.0% in Quarter 2 (Apr to June) 2015, following an increase of 0.2% in the previous quarter. Mining and quarrying contributed the most to the increase, expanding by 7.8%. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, production output increased by 1.8%.

Construction

Construction output was flat in Quarter 2 (Apr to June) 2015, following a decrease of 0.2% in the previous quarter. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, construction output increased by 2.2%.

Distribution, hotels and restaurants

The index for distribution, hotels and restaurants increased by 0.9% in Quarter 2 (Apr to June) 2015, following an increase of 1.1% in the previous quarter. Motor vehicles made the largest positive contribution to the increase. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, distribution, hotels and restaurants output increased by 4.5%.

Transport, storage and communication

The index for transport, storage and communication increased by 0.8% in Quarter 2 (Apr to June) 2015, following an increase of 0.7% in the previous quarter. Motion picture, video and TV programme production made the largest contribution to the increase. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, transport, storage and communication output increased by 3.7%.

Business services and finance

The index for business services and finance increased by 0.8% in Quarter 2 (Apr to June) 2015, following an increase of 0.1% in the previous quarter. Both legal activities, and activities of head offices and management consultancies made the largest positive contributions to the increase. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, business services and finance output increased by 3.1%.

Government and other services

The index for government and other services increased by 0.2% in Quarter 2 (Apr to June) 2015, following an increase of 0.3% in the previous quarter. Human health activities made the largest positive contribution to the increase. Between Quarter 2 (Apr to June) 2014 and Quarter 2 (Apr to June) 2015, government and other services output increased by 0.6%.

Background

The methods for producing the preliminary GDP estimate use monthly data for the first 2 months in the quarter and forecasts for estimating the third month. The forecasts are reinforced by early responses to our Monthly Business Survey (MBS), but the monthly response rate is generally lower at this stage (typically between 30 and 50% at this point in time).

Each of the first 2 months includes monthly data from the MBS of 44,000 businesses, covering the production, manufacturing, services, retail and construction industries.

The forecasts for June use our standard method of fitting an autoregressive integrated moving average (ARIMA) model with adjustments made for Easter, trading days and outliers. The forecasts are calculated for each individual industry level series (for example, food and beverage services). More information on creating the preliminary estimate of GDP is available on the Methods and sources page.

Purpose of this section

This section provides details of the assumptions made for June 2015 for each of the main components of the output approach to measuring GDP: services, production and construction.

It was estimated that there was a 0.4% rise in the output of the services industries between May and June 2015.

At the more detailed level, it was estimated that distribution, hotels and restaurants rose by 0.3%, transport, storage and communication rose by 0.5%, business services and finance rose by 0.5%, and government and other services rose by 0.2%.

The services data for April and May 2015 used in the calculation of the Quarter 2 (Apr to June) 2015 GDP preliminary estimate are consistent with the data contained in the May 2015 Index of Services release published on 28 July 2015.

It was estimated that there was a 0.1% rise in the output of the production industries between May and June 2015.

At the more detailed level, it was estimated that manufacturing increased by 0.1%, water and waste management increased by 3.8% and energy supply increased by 1.4%. Partially offsetting these increases was a fall in mining and quarrying of 3.1%

Small revisions (following revised seasonal factors allowing for the addition of June data) to the April and May 2015 estimates, published in the latest Index of Production (IoP) release on 7 July 2015, have been used in the calculation of the Quarter 2 (Apr to June) 2015 GDP preliminary estimate. To retain coherence between the published monthly and quarterly indices for Quarter 2 (Apr to June) 2015, small adjustments have been made to the monthly growth rates for June 2015 for total production, mining and quarrying, energy supply and water and waste management. This ensures that if the monthly growth rates for June are applied to the published May 2015 indices for total production and the main components (and then an average taken of the April, May and June 2015 indices), the results are consistent with the published quarterly indices.

Monthly data for the construction industries are only available from January 2010.

The forecast for construction is calculated slightly differently to production and services due to the shorter time span of monthly turnover data. More weight is placed on early responses to the monthly business survey for June 2015. Responses from businesses were the starting point to inform the forecasts; this was then adjusted (using information collected in previous months) in recognition that these early responses from businesses tend to be lower than later responses. This approach led to an estimate of flat growth (0.0%) between Quarter 1 (Jan to Mar) 2015 and Quarter 2 (Apr to June) 2015.

Some revisions (due to receipt of additional survey data and revised seasonal factors allowing for the addition of June 2015 data) to the April and May 2015 estimates, published in the latest Output in the Construction Industry - May 2015 release, published on 10 July 2015, have been used in the calculation of the Quarter 2 (Apr to June) 2015 GDP preliminary estimate. To retain coherence between the published monthly and quarterly indices for Quarter 2 (Apr to May) 2015, adjustments have been made, in line with our normal practice, to the monthly growth rates for June 2015 for construction output. This ensures that if the monthly growth rates for June 2015 are applied to the published May 2015 indices for construction output (and then an average taken of the April, May and June 2015 indices), the results are consistent with the published quarterly indices.