Gross Domestic Product Preliminary Estimate: Quarter 4 (Oct to Dec) 2015

• Change in gross domestic product (GDP) is the main indicator of economic growth. GDP is estimated to have increased by 0.5% in Quarter 4 (Oct to Dec) 2015 compared with growth of 0.4% in Quarter 3 (July to Sept) 2015

• Output increased in 2 of the main industrial groupings within the economy in Quarter 4 (Oct to Dec) 2015. Services increased by 0.7% and agriculture increased by 0.6%. In contrast, production decreased by 0.2%, while construction output decreased by 0.1%

• GDP was 1.9% higher in Quarter 4 (Oct to Dec) 2015 compared with the same quarter a year ago. GDP in 2015 as a whole increased by 2.2% on 2014

• In Quarter 4 (Oct to Dec) 2015, GDP was estimated to have been 6.6% 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 6.1%

• 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. 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 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 (October and November) and forecasts for estimating the third month (December), which incorporate early survey responses where available. More information about the data content for this release can be found in the Assumptions made for December 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. 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 3 (July to Sept) 2015 and Quarter 4 (Oct to Dec) 2015). GDP increased by 0.5% in the fourth quarter of 2015.

GDP for 2015 increased by 2.2% on 2014. This compares to an increase of 2.9% between 2013 and 2014.

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 2012 based weights are: services 78.6%; production 14.9%; construction 5.9%; and agriculture 0.7%.

Services increased by 0.7%, contributing 0.52 percentage points to Quarter 4 (Oct to Dec) 2015 GDP growth (as seen in Figure 1). This followed an increase of 0.6% in Quarter 3 (July to Sept) 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 0.6% in Quarter 3 (July to Sept) 2015 to 0.9% in Quarter 4 (Oct to Dec) 2015. This was the main reason behind the increase in services growth between the 2 quarters.

There was a slight small downward contribution (0.03 percentage points) from the production industries; these industries fell by 0.2%, with mining and quarrying decreasing by 1.4% following an increase of 2.6% in Quarter 3 (July to Sept) 2015, water and waste management decreasing by 0.4% following a rise of 0.3% in Quarter 3 (July to Sept) 2015 and energy supply decreasing by 0.2% following a increase of 1.0% in Quarter 3 (July to Sept) 2015. In contrast, manufacturing growth was flat, following a decrease of 0.4% in Quarter 3 (July to Sept) 2015.

There was a downward contribution (0.01 percentage points) from construction; this industry fell by 0.1%. This follows a decrease of 1.9% in Quarter 3 (July to Sept) 2015.

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 2 (April to June) 2013.

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 2012, making the average index in 2012 equal to 100. It is for this reason that Figure 3 shows all components converging in 2012.

Industries have shown differing trends following the economic downturn in 2008-2009. 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 clearly 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 1 (Jan to Mar) 2012.

Production and construction activity began to grow in 2010 with manufacturing showing particular strength – 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 2015 as a whole was 3.2% higher than 2014, much lower than the rate of growth for 2014 (7.5%). This was largely due to the 2 consecutive quarters of negative growth in the second half of 2015, with construction output falling by 1.9% and 0.1% in Quarter 3 (July to Sept) and Quarter 4 (Oct to Dec) respectively. Although there has generally been growth across all major components of GDP since the start of 2013, the services industries remain the largest and steadiest contributors to economic growth (Table 1) and the only major 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 4 (Oct to Dec) 2015.

However, GDP data are widely available for most major economies up to the third quarter (July to Sept) of 2015 and a comparison of this information is shown in Figure 5. The level of GDP in 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. 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 2 (Apr to June) 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. Since 2013, the UK is shown to have had one of the strongest recoveries relative to the rest of the G7 economies.

European economies have continued to struggle since the euro area sovereign debt crisis in 2011, with Italy particularly affected. In Quarter 3 (July to Sept) 2015, economic growth in France was 0.3% following a period of flat growth in the second quarter (Apr to June) of 2015. GDP in Germany and Italy increased by 0.3% and 0.2% on the quarter respectively; compared with the rest of the G7 Italy has continued to show relatively weaker growth on a quarter on year ago basis (0.8%). GDP in Italy still remains 9.0% below the level observed in Quarter 1 (Jan to Mar) 2008.

Agriculture

Agriculture output increased by 0.6% in Quarter 4 (Oct to Dec) 2015, following an increase of 0.2% in the previous quarter. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, agriculture output decreased by 1.8%. The index for agriculture in 2015 increased by 0.7% on 2014.

Production

The index of production decreased by 0.2% in Quarter 4 (Oct to Dec) 2015, following an increase of 0.2% in the previous quarter. Mining and quarrying contributed the most to the decrease, contracting by 1.4%. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, production output increased by 1.1%. The index for production in 2015 increased by 1.2% on 2014.

Construction

Construction output decreased by 0.1% in Quarter 4 (Oct to Dec) 2015, following a decrease of 1.9% in the previous quarter. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, construction output increased by 0.3%. The index for construction in 2015 increased by 3.2% on 2014.

Distribution, hotels and restaurants

The index for distribution, hotels and restaurants increased by 1.1% in Quarter 4 (Oct to Dec) 2015, following an increase of 0.9% in the previous quarter. Retail trade, except of motor vehicles and motorcycles made the largest positive contribution to the increase. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, distribution, hotels and restaurants output increased by 4.2%. The index for distribution, hotels and restaurants in 2015 increased by 4.6% on 2014.

Transport, storage and communication

The index for transport, storage and communication increased by 0.3% in Quarter 4 (Oct to Dec) 2015, following an increase of 1.0% in the previous quarter. Computer programming, consultancy and related activities made the largest contribution to the increase. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, transport, storage and communication output increased by 3.4%. The index for transport, storage and communication in 2015 increased by 4.2% on 2014.

Business services and finance

The index for business services and finance increased by 0.9% in Quarter 4 (Oct to Dec) 2015, following an increase of 0.6% in the previous quarter. Office admin and other business support made the largest positive contribution to the increase. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, business services and finance output increased by 2.1%. The index for business services and finance in 2015 increased by 2.7% on 2014.

Government and other services

The index for government and other services increased by 0.3% in Quarter 4 (Oct to Dec) 2015, following an increase of 0.2% in the previous quarter. Human health activities made the largest positive contribution to the increase. Between Quarter 4 (Oct to Dec) 2014 and Quarter 4 (Oct to Dec) 2015, government and other services output increased by 0.4%. The index for government and other services in 2015 increased by 0.2% on 2014.

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 are 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 MBS with the 44,000 businesses sampled, covering the production, manufacturing, services, and retail and construction industries.

The forecasts for December 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 December 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 0.3% rise in the output of the services industries between November and December 2015.

At the more detailed level, it was estimated that business services and finance rose by 0.6%, transport, storage and communication rose by 0.4% and government and other services rose by 0.1%. Distribution, hotels and restaurants fell by 0.2%.

The services data for October and November 2015 used in the calculation of the Quarter 4 (Oct to Dec) 2015 GDP preliminary estimate are consistent with the data contained in the November 2015 Index of Services release published on 28 January 2016.

It was estimated that there was a 0.2% fall in the output of the production industries between November and December 2015.

At the more detailed level, it was estimated that mining and quarrying decreased by 1.0% and energy supply decreased by 0.9%. This was partially offset by an increase of 0.5% in water and waste management. Manufacturing was flat over the period.

Small revisions (following revised seasonal factors allowing for the addition of December data) to the October and November 2015 estimates, published in the latest Index of Production (IoP) release on 12 January 2016, have been used in the calculation of the Quarter 4 (Oct to Dec) 2015 GDP preliminary estimate. To retain coherence between the published monthly and quarterly indices for Quarter 4 (Oct to Dec) 2015, small adjustments have been made to the monthly growth rates for December 2015 for total production, mining and quarrying, energy supply, and water and waste management. This ensures that if the monthly growth rates for December are applied to the published November 2015 indices for total production and the main components (and then an average taken of the October, November and December 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 December 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 estimated fall of 0.1% in the output of the construction industries between Quarter 3 (July to Sept) 2015 and Quarter 4 (Oct to Dec) 2015.

Some revisions (due to receipt of additional survey data and revised seasonal factors allowing for the addition of December 2015 data) to the October and November 2015 estimates, published in the latest Output in the Construction Industry - November 2015 release, on 15 January 2016, have been used in the calculation of the Quarter 4 (Oct to Dec) 2015 GDP preliminary estimate. To retain coherence between the published monthly and quarterly indices for Quarter 4 (Oct to Dec) 2015, adjustments have been made, in line with our normal practice, to the monthly growth rates for December 2015 for construction output. This ensures that if the monthly growth rates for December 2015 are applied to the published November 2015 indices for construction output (and then an average taken of the October, November and December 2015 indices), the results are consistent with the published quarterly indices.