Gross domestic product, preliminary estimate: October to December 2017

• UK gross domestic product (GDP) was estimated to have increased by 0.5% in Quarter 4 (Oct to Dec) 2017, compared with 0.4% in Quarter 3 (July to Sept) 2017.
• The dominant services sector, driven by business services and finance, increased by 0.6% compared with the previous quarter, although the longer-term trend continues to show a weakening in services growth.
• Production industries grew by 0.6%, boosted by the second consecutive quarter of strong growth in manufacturing.
• Growth in manufacturing was partially offset in total production by a significant fall in oil and gas extraction, caused by the well-publicised repair work made to the Forties pipeline.
• Construction contracted for the third quarter in a row, although annual growth between 2016 and 2017 was very strong at 5.1%, due to a strong start to 2017.
• GDP was estimated to have increased by 1.8% between 2016 and 2017, slightly below the 1.9% growth seen between 2015 and 2016.

We published a response to the consultation on proposed changes to the Gross domestic product (GDP) release schedule on 19 October 2017. Further details on this response are available on our Consultation Hub.

In summary, an estimate of monthly GDP will be published on 10 July 2018 (for the reference period of May) and there will be two quarterly estimates of GDP per quarter rather than the current three; the preliminary estimate of GDP will be deferred by around two weeks and the second estimate of GDP will be brought forward by two weeks to form the new first estimate, meaning the income and expenditure approaches to GDP will be made available earlier than presently. The first estimate of quarterly GDP (for Quarter 2 (Apr to June) 2018) under this new model will be published on 10 August 2018.

Change in gross domestic product (GDP) is the main indicator of economic growth. The preliminary estimate of GDP is based solely on the output approach to measuring GDP.

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 our methodology page).

The preliminary estimate is the first of three estimates of GDP published by the Office for National Statistics, followed by the second estimate and the quarterly national accounts. 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 three approaches to measuring GDP can be found in the national accounts.

All data in this bulletin are seasonally adjusted, chained volume estimates and have had the effect of price changes removed (in other words, the data are deflated).

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. 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, with no upward or downward bias to these revisions. More information on the data content and the monthly path of the components of the output measure of GDP are included in section 6.

In accordance with National Accounts Revisions Policy, there are no periods open for revision in this release.

Table 1 shows data for gross domestic product (GDP), GDP per head and each of the main industry aggregates for Quarter 4 (Oct to Dec) 2017.

Table 2 shows the annual growths for GDP and each of the main industry aggregates for 2016 and 2017.

Figure 1 shows the seasonally adjusted volume series for GDP, along with quarter-on-quarter growths, over the past decade. Following growth of 0.5% in Quarter 4 2017, GDP has grown for 20 consecutive quarters.

Figure 2 shows the contributions of the main industry aggregates to GDP quarter on the same quarter a year ago growth, along with GDP growth itself. This highlights how the underlying picture, over the period shown, has been broadly one of slowing growth of total GDP, as well as the services and construction industries. However, production growth, largely driven by manufacturing, has remained more stable.

In Quarter 4 (Oct to Dec) 2017, UK gross domestic product (GDP) was estimated to have increased by 0.5%. The services aggregate was the main driver of the growth in GDP, growing by 0.6% and contributing 0.45 percentage points.

Production continued to grow, driven mainly by rising manufacturing, with a rise of 0.6% in Quarter 4 2017, contributing 0.09 percentage points to GDP. However, construction contracted by 1.0%, contributing negative 0.06 percentage points. Agriculture also contracted by 0.4% and contributed 0.00 percentage points due to its low industry weight.

Services

Services grew by 0.6% in Quarter 4 2017, up from 0.4% growth in the previous quarter. All four sectors within services experienced growth this quarter.

Despite services growth in the most recent quarter, quarterly growth compared with the same quarter a year ago showed a weakening, particularly in the more domestic consumer-facing type sectors. Here, domestic consumer-facing industries are broadly considered to be those in distribution, hotels and catering, and transport, storage and communications (Figure 3).

There has been weakening in a number of industries within these broader sectors, but most notably within accommodation, motor trades and motion pictures. However, in the case of motion pictures, this apparent weakening in growth between Quarter 1 (Jan to Mar) 2015 and Quarter 4 2017 can be largely attributed to changes in Film Tax Relief in 2014, which resulted in very strong quarter on quarter a year ago growth throughout 2015. This industry has continued to show strong growth across 2016 and 2017.

The business services and finance sector continued to be the main driver of growth in services in the latest quarter, increasing by 0.8% and contributing 0.28 percentage points. There was broad-based growth within this sector, with the largest contributor to GDP growth being employment activities, which increased by 3.6% and contributed 0.04 percentage points.

Transportation, storage and communication experienced growth of 0.8% in Quarter 4 2017, contributing 0.09 percentage points to GDP growth. Within this sector, warehousing and support activities for transportation was the main driver of growth, with growth of 3.6% and contributing 0.04 percentage points. This follows a weak Quarter 3 (July to Sept) 2017 for this industry.

Distribution, hotels and catering grew by 0.1% (contributing 0.01 percentage points) in Quarter 4 2017. Wholesale trade and retail trade were the largest contributors to growth, increasing by 0.7% and 0.4% respectively.

Government and other services grew by 0.4%, contributing 0.08 percentage points to GDP growth. The largest contributor to this sector was human health activities with growth of 0.6% and contributing 0.03 percentage points to GDP growth. This industry has a high weight within GDP.

Production

Within production, there was growth in three out of the four sectors in Quarter 4 2017. However, mining and quarrying fell by 3.9%, due to the well-publicised shut down of the Forties oil pipeline for a large part of December 2017. This sector contributed negative 0.05 percentage points to GDP growth.

Manufacturing was the largest contributor to growth within production, at 1.3% and contributing 0.13 percentage points. Meanwhile, electricity, gas, steam and air conditioning supply increased by 0.4% and water supply, sewerage, waste management and remediation activities increased by 0.3%.

Construction

Construction output was estimated to have decreased by 1.0% during Quarter 4 2017, following contraction in the previous two quarters. However, annual growth was 5.1% between 2016 and 2017, demonstrating that the most recent contractions are relatively small compared with the large growth throughout 2016 and into the first quarter of 2017. Figure 5 highlights how the recent contraction is relatively minor compared with the growth since 2015.

Agriculture

Agriculture decreased by 0.4% in Quarter 4 2017, after an increase of 0.8% last quarter. Agriculture is the smallest of the main industrial groups with a weight of less than 1% in the output measure of GDP.

Figure 6 contains information about the data content for each month in Quarter 4 (Oct to Dec) 2017 and the quarter as a whole. The data content for the Quarter 4 2017 preliminary estimate is 45% of total output data, which is broadly the same as previous preliminary estimates.

The approach to producing the preliminary GDP estimate uses monthly output data for October and November and forecasts for estimating December. The forecasts are informed by early responses to our Monthly Business Survey.

Analysis of early survey returns from businesses that feed into our construction estimates has shown that these tend to be lower than returns that are made at a later point in the data collection period. As a result, a quality adjustment is applied to the quarterly estimates for construction to account for any bias introduced from the lower data content available for December. These adjustments are calculated by assessing the revisions performance of quarterly construction estimates between the preliminary estimate of GDP and the second estimate over a number of periods. The adjustments are removed in the second estimate of GDP, when a fuller quarter of construction data are available.

The preliminary estimate of GDP does not revise quarters prior to the most recent quarter. Instead, these revisions are made when additional information is available from the income and expenditure measures of GDP. However, to ensure that we achieve the best estimate of growth for GDP in the latest quarter, in some cases we may take into account these stored revisions. As a result, it may not always be possible to derive the growth rate for the most recent quarter by applying the monthly growth rates published as part of this statistical bulletin, to the unrevised previous quarter.

More information on creating the preliminary estimate of GDP is available on the methodology page.

The Index of Production, construction output and Index of Services all feed into the headline GDP estimate. Some small revisions have taken place to previously published estimates, as seen in Table 3. Additional detail for sectors within production and services can be found in the Monthly Path dataset, published alongside this bulletin.

The preliminary estimate of gross domestic product (GDP) is based solely on the output approach to measuring GDP and uses the same data that feed into the Index of Services, the Index of Production and Output in the Construction Industry datasets.

Data for the retail industry are broadly comparable with Retail sales in Great Britain: December 2017, published on 19 January 2018, but as the two series operate under different revisions policies, there can be timing differences in the updating of the two series. Therefore, inconsistencies between the two series are not unusual but tend to be small. There are also conceptual and coverage differences between retail sales and retail output, which can lead to apparent inconsistencies.

In the second estimate of GDP and the quarterly national accounts, the output gross value added (GVA) and GDP estimates are balanced with the equivalent income and expenditure approaches to produce headline estimates of GVA and GDP.

Some general information on the quality of the estimate of gross domestic product (GDP) can be found in the “Things you need to know about this release” section in the main part of this statistical bulletin. Further information is available on our methodology page.

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

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

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.