Gross domestic product, preliminary estimate: Apr to June 2016

Change in gross domestic product (GDP) is the main indicator of economic growth. GDP was estimated to have increased by 0.6% in Quarter 2 (Apr to June) 2016 compared with growth of 0.4% in Quarter 1 (Jan to Mar) 2016.

Output increased in 2 of the main industrial groupings within the economy in Quarter 2 2016. Services increased by 0.5% and production increased by 2.1%. In contrast, construction decreased by 0.4% and agriculture decreased by 1.0%.

GDP was 2.2% higher in Quarter 2 2016 compared with the same quarter a year ago.

In Quarter 2 2016, GDP was estimated to have been 7.7% higher than the pre-economic downturn peak of Quarter 1 2008. From the peak in Quarter 1 2008 to the trough in Quarter 2 2009, the economy shrank by 6.3%.

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 becomes available, but these revisions are typically small between the preliminary and third estimates of GDP, with no upward or downward bias to these revisions.

All figures in this release are seasonally adjusted. In line with the national accounts revision policy, no earlier periods have been revised.

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 feeds 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 national accounts.

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 6.

The quality of the estimate of GDP

The national accounts are drawn together using data from many different sources. This ensures that the national accounts are comprehensive and provide different perspectives on the economy, for example, sales by retailers and purchases by households. One source of information is from business surveys which use information provided directly from UK businesses. These data are subject to many layers of vigorous quality assurance by highly trained personnel, from clarity and confirmation of individual unit data direct from the business contact to scrutiny of data at the macro level. By comparing and contrasting these different sources, the national accounts produce a single picture of the economy which is consistent, coherent and fully integrated.

The production and publication of each GDP release is managed by a highly skilled team with a strong emphasis on statistical, analytical and economic debate throughout the production process to publish the headline GDP estimate and components. Although a limited audience have access to GDP data ahead of publication, those involved in the process are selected to ensure each GDP estimate receives a rigorous statistical and economic challenge. A “balancing meeting” is held during each production round where presentations assess GDP and components against a swathe of external indicators and a focus on GDP headline components. This is attended by senior managers within the Office for National Statistics (ONS) who challenge the data to ensure consistency and plausibility of the GDP estimate.

The preliminary estimate of GDP is produced around 25 days after the end of the quarter based on data from the output measure only, to provide a timely estimate of GDP, 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 2016 section and the background notes.

Unlike many short-term indicators published by ONS, there is no simple way of measuring the accuracy of GDP. All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics we measure and publish the sampling error and non-sampling error associated with the estimate, using this as an indicator of accuracy. Since sampling is typically done to determine the characteristics of a whole population, the difference between the sample and population values is considered a sampling error.

Non-sampling errors are a result of deviations from the true value that are not a function of the sample chosen, including various systematic errors and any other errors that are not due to sampling. The estimate of GDP, however, is currently constructed from a wide variety of data sources, some of which are not based on random samples or do not have published sampling and non-sampling errors available and as such it is very difficult to measure both error aspects and their impact on GDP. While development work continues in this area, like all other G7 national statistical institutes, we don't publish a measure of the sampling error/non-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 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.

One dimension of measuring accuracy is reliability, which is measured using evidence from analyses of revision to assess the closeness of early estimates to subsequently estimated values. Many users try to minimise the impact of uncertainty through using the historical experience of revisions as a basis for estimating how confident they are in early releases and predicting how far and in what direction the early release might be revised. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The estimate is subject to revisions as more data becomes 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. Many different approaches can be used to summarise revisions; the Validation and Quality Assurance section in the Quality and Methodology Information paper analyse the mean average revision and the mean absolute revision for GDP estimates over data publication iterations - in addition to this analysis, Section 14 of the Revisions to GDP and components in Blue Books 2014 and 2015 article updates the metrics used to test revisions performance in order to answer the question “Is GDP biased?”

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 and 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) 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. Since the publication of the Quarterly National Accounts, Quarter 2 (Apr to June) 2015, this interim solution has been used for data periods from Quarter 1 (Jan to Mar) 2014 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) 2016 and Quarter 2 (Apr to June) 2016). GDP increased by 0.6% in the second quarter of 2016.

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 2013 - based weights are: services 78.8%; production 14.6%; construction 5.9%; and agriculture 0.7%.

Growth in the services industries in Quarter 2 (Apr to June) 2016 increased by 0.5%, contributing 0.37 percentage points to quarterly GDP growth (as seen in Figure 1), slowing from an increase of 0.6% in Quarter 1 (Jan to Mar) 2016. In the latest period all 4 of the main services aggregates (distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services) increased. Growth in the business services and finance industries in Quarter 2 2016 increased by 0.5% slowing from 0.7% in Quarter 1 2016 and was the main reason behind the reduction in services growth between the 2 quarters.

Growth in the production industries in Quarter 2 2016 increased by 2.1%, contributing 0.30 percentage points to quarterly GDP growth (as seen in Figure 1), this follows a decrease of 0.2% in Quarter 1 2016. In the latest period all 4 of the main production aggregates increased with: manufacturing increasing by 1.8% in Quarter 2 2016 following a decrease of 0.2% in Quarter 1 2016; energy supply increasing by 4.7% in Quarter 2 2016 following an increase of 0.7% in Quarter 1 2016; water and waste management increasing by 2.6% in Quarter 2 2016 following an increase of 2.4% in Quarter 1 2016; and mining and quarrying increasing by 1.4% in Quarter 2 2016 following a decrease of 2.2% in Quarter 1 2016.

Growth in the construction industries in Quarter 2 2016 decreased by 0.4% with a downward contribution of 0.03 percentage points, this follows a decrease of 0.3% in Quarter 1 2016.

As seen in Figure 2, GDP in the UK grew consistently 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 low or declining GDP growth. 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 Sept) 2013.

GDP and all of its components are referenced to 2013, making the average index in 2013 equal to 100. It is for this reason that Figure 3 shows all components converging in 2013.

Figure 3 shows the industry breakdown of GDP from 2003. 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 2003 and 2004 and although there was a temporary decline in the mid-2000s, this was reversed in 2006 when construction started growing again.

This GDP preliminary estimate shows that the UK economy grew by 0.6% in Quarter 2 (Apr to June) 2016, slightly faster than the 0.4% estimate for Quarter 1 (Jan to Mar) 2016. This growth is consistent with the average quarter-on-quarter growth (0.6%) seen since Quarter 1 2013, when the economy started growing steadily. It also marks the 14th consecutive quarter of positive growth since the beginning of 2013 with GDP being 7.7% above its pre-downturn peak (Quarter 1 2008). In addition, GDP grew by 2.2% between Quarter 2 2016 and Quarter 2 2015, which was slightly above the 2.0% growth between Quarter 1 2016 and Quarter 1 2015 but slightly slower than the average quarter-on-quarter a year ago growth (2.4%) since Quarter 1 2013.

Looking at the headline industries in more detail, Figure 4 indexes the level of output in the headline industries to 100 at Quarter 1 (Jan to Mar) 2008. This shows that the services industries have experienced the strongest and steadiest growth in the recovery, which continued in Quarter 2 (Apr to June) 2016. Output in the services industries is now 11.2% above its pre-downturn peak, which was surpassed in Quarter 2 2012, whilst the other headline industries have yet to surpass their respective pre-downturn peak. However, the rise in GDP growth in Quarter 2 2016 is not solely attributable to services, with production increasing by 2.1% on the quarter. In contrast, construction output remains weak, contracting by 0.4% in Quarter 2 2016 and by 1.2% since Quarter 2 2015.

The ONS GDP preliminary estimate 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 2016. However, GDP data are widely available for most major economies up to Quarter 1 2016, and a comparison of this information is shown in Figure 5.

In Quarter 1 (Jan to Mar) 2016, economic growth in France was 0.6% following from a growth of 0.4% in Quarter 4 (Oct to Dec) 2015. GDP in Germany and Italy increased by 0.7% and 0.3% during Quarter 1 2016 respectively. GDP in Italy still remains 8.5% below the level observed in Quarter 1 2008.

In Figure 5 the level of GDP in each country has been indexed to Quarter 1 2008 so that a comparison of recoveries since the global downturn can be made. Italy is the only G7 nation still below its pre-downturn peak as shown in Figure 5. The level of GDP in the UK surpassed its pre-downturn peak in Quarter 3 (July to Sept) 2013. Figure 5 indicates that the UK recovery took longer than some other countries in the G7 (Germany, Canada, France and the US). This is in part due to the nature of the downturn in the UK; GDP fell to a greater extent than most of the 4 economies listed above and as a result has taken longer to recover. Since 2013, the UK has had the fastest growth relative to the rest of the G7 economies.

Agriculture

Agriculture output decreased by 1.0% in Quarter 2 (Apr to June) 2016, following flat growth of 0.0% in the previous quarter. Between Quarter 2 2015 and Quarter 2 2016, agriculture output decreased by 0.4%.

Production

The index of production increased by 2.1% in Quarter 2 2016, following a decrease of 0.2% in the previous quarter. Manufacturing contributed the most to the increase, growing by 1.8%. Between Quarter 2 2015 and Quarter 2 2016, production output increased by 1.8%.

Construction

Construction output decreased by 0.4% in Quarter 2 2016, following a decrease of 0.3% in the previous quarter. Between Quarter 2 2015 and Quarter 2 2016, construction output decreased by 1.2%.

Distribution, hotels and restaurants

The index for distribution, hotels and restaurants increased by 1.1% in Quarter 2 2016, following an increase of 1.4% in the previous quarter. Retail trade except of motor vehicles and motorcycles made the largest positive contribution to the increase. Between Quarter 2 2015 and Quarter 2 2016, distribution, hotels and restaurants output increased by 5.0%.

Transport, storage and communication

The index for transport, storage and communication increased by 0.3% in Quarter 2 2016, following flat growth of 0.0% in the previous quarter. Computer programming, consultancy and related activities made the largest contribution to the increase. Between Quarter 2 2015 and Quarter 2 2016, transport, storage and communication output increased by 2.4%.

Business services and finance

The index for business services and finance increased by 0.5% in Quarter 2 2016, following an increase of 0.7% in the previous quarter. Activities of head offices, management consultancy activities made the largest positive contribution to the increase. Between Quarter 2 2015 and Quarter 2 2016, business services and finance output increased by 2.7%.

Government and other services

The index for government and other services increased by 0.1% in Quarter 2 2016, following an increase of 0.3% in the previous quarter. Human health activities made the largest positive contribution to the increase. Between Quarter 2 2015 and Quarter 2 2016, government and other services output increased by 1.2%.

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 (with production and services approximately 60% and construction approximately 30% at this point in time).

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

In summary, the data content within the preliminary estimate of GDP for Quarter 2 (Apr to June) is shown in Figure 6.

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 2016 for each of the main components of the output approach to measuring GDP: services, production and construction.

It was estimated that there was a 0.1% rise in the output of the services industries between May and June 2016.

At the more detailed level, it was estimated that business services and finance and distribution, hotels and restaurants increased by 0.2%. Transport, storage and communication and government and other services both remained flat.

The services data for April and May 2016 used in the calculation of the Quarter 2 (Apr to June) 2016 GDP preliminary estimate are consistent with the data contained in the May 2016 Index of Services release published on 27 July 2016.

It was estimated that there was a 0.2% increase in the output of the production industries between May and June 2016. At the more detailed level, it was estimated that mining and quarrying increased by 1.9%, water and waste management increased by 0.9% and energy supply increased by 0.6%. In contrast, manufacturing decreased by 0.2%.

Revisions to the April and May 2016 estimates, published in the latest Index of Production (IoP) release on 7 July 2016, have been used in the calculation of the Quarter 2 (Apr to June) 2016 GDP preliminary estimate. These revisions will now be presented as part of this release (previously April and May would be constrained to previously published data and any revisions would be included within the June assumption). However, on this occasion there are no revisions to the previously published April and May estimates for production.

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 2016. Responses from businesses over the quarter were the starting point to inform the forecasts; this was then adjusted in recognition that early responses from businesses tend to be lower than later responses. This approach led to an estimated fall of 0.4% in the output of the construction industries between Quarter 1 (Jan to Mar) 2016 and Quarter 2 (Apr to June) 2016.

Some revisions (due to receipt of additional survey data and revised seasonal factors allowing for the addition of June 2016 data) to the April and May 2016 estimates, published in the latest Output in the Construction Industry – May 2016 release, on 15 July 2016, have been used in the calculation of the Quarter 2 (Apr to June) 2016 GDP preliminary estimate. These revisions will now be presented as part of this release (previously April and May would be constrained to previously published data and any revisions would be included within the June assumption). On this occasion, there is no revision to the previously published April estimate for construction. However, the previously published estimate for May has been revised up 0.6 percentage points from -2.1% to -1.5%.

Some general information on the quality of the estimate of GDP can be found in the Understanding the preliminary estimate of GDP section in the main part of this statistical bulletin. Further information is available on the methods and sources page of our website.

The GDP Quality and Methodology Information document contains important information on:

• the strengths and limitations of the data
• the quality of the output: including the accuracy of the data and how it compares with related data
• uses and users
• how the output was created

The national accounts provide an integrated description of all economic activity within the economic territory of the UK, including activity involving both domestic units (that is, individuals and institutions resident in the UK) and external units (those resident in other countries). In addition to being comprehensive, the accounts are fully integrated and internally consistent. More information can be found in the UK National Accounts: A Short Guide.