GDP quarterly national accounts, UK: April to June 2017

• UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.3% between Quarter 1 (Jan to Mar) and Quarter 2 (Apr to June) 2017, unrevised from the second estimate of GDP.

• Services provided the only positive contribution to growth in Quarter 2 2017, with the output measure of GDP unrevised at 0.3%.

• Despite some small downward revisions to quarter-on-quarter growth in 2016, between 2015 and 2016, UK GDP grew by 1.8%, unrevised from the previous estimate.

• Business investment growth in 2016 has been revised up by 1.1 percentage points but still fell in 2016 compared with 2015 by 0.4%; quarter-on-quarter growth was also revised from flat to 0.5% growth in Quarter 2 2017.

• Household expenditure growth slowed to 0.2% in Quarter 2 2017 and was revised downwards in the second half of 2016.

• Estimates in this bulletin are consistent with our annual national accounts Blue Book 2017 publication, to be published on 31 October 2017.

Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP; the output approach, the expenditure approach and the income approach.

The quarterly national accounts are typically published around 90 days after the end of the quarter. At this stage the data content of this estimate from the output approach to GDP has risen since the second estimate to around 91% of the total required for the final output-based estimate. There is also around 90% data content available to produce estimates of GDP from the expenditure approach and around 70% data content from the income approach.

Further information on all three approaches to measuring GDP can be found in the short guide to national accounts.

Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated), with the exception of income data, which are only available in current prices.

Blue Book 2017

This release contains data that are consistent with the UK National Accounts Blue Book 2017, which will be released on 31 October 2017. The Blue Book is the UK’s annual compendium of national accounts data and incorporates a number of improvements to methods and sources into the UK’s National Accounts. Changes have been made in line with international standards adopted by all European Union (EU) member states and with worldwide best practice. These, and additional improvements we are making, will ensure that our national accounts continue to provide a reliable framework for analysing the UK economy and comparing it with other countries.

We have published a number of articles detailing these changes and their impact on the national accounts. These changes are summarised in an article published today (29 September 2017) discussing the impact of method changes to the national accounts and sector accounts: Quarter 1 1997 to Quarter 2 2017. This article also includes links to a range of previously published articles which, give further background on these changes.

Reference and base year

This is the first release in which the reference year and last base year have been moved from 2013 to 2015. In the Impact of methodological changes to chain-linking on gross domestic product article we informed you of this and, that pending the outcome of further analysis, we would investigate the feasibility of further moving the last base year on when the data for the most recent year are formed. Further methodological work will continue to develop an approach to further moving on the last base year.

Revisions

In line with National Accounts Revisions Policy the entire time series within this release has been subject to revision.

Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. Revisions to data provide one indication of the reliability of main indicators and we therefore provide an analysis of past revisions in the GDP and other statistical bulletins that present time series. Our revisions to economic statistics page brings together our work on revisions analysis, linking to articles and revisions policies. Revisions triangles are published on our website for UK GDP, UK gross value added, the GDP implied deflator and the expenditure and income components of GDP.

UK gross domestic product (GDP) increased by 0.3% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017, unrevised from the second estimate of GDP published on 24 August 2017.

In this release all periods are open for revision. Figures for 2015 have been through the annual supply and use balancing process for the first time. Estimates for the “quarterly tail” (2016 onwards) have also been open to revision based on new data and improved methodology.

Annually, UK GDP grew by 1.8% between 2015 and 2016, which is unrevised from the previous estimate. In 2016, there are small downward revisions to quarter-on-quarter GDP growth of 0.1 percentage points in Quarter 2 (Apr to June), Quarter 3 (July to Sept) and Quarter 4 (Oct to Dec) 2016. There has been a small upward revision of 0.1 percentage points in Quarter 1 2017. It is possible for the annual figure to be unrevised despite revisions to three quarters within the year. Annual growth compares the GDP level through the whole of 2016 with the whole of 2015, while quarterly growths only make comparison with the previous quarter. Furthermore, as growth rates are presented to one decimal place they are sensitive to revision from small changes where they are close to rounding points.

Downwards revisions to the quarterly path in both Quarter 2 and Quarter 3 2016 were seen in the expenditure, income and output measures of GDP, whereas Quarter 4 2016 was revised as a result of downwards revisions to both the expenditure and income measures. In Quarter 1 2017, however, revisions were driven by net trade in the expenditure approach.

Table 1 shows GDP and the headline economic indicators from 2015 onwards.

Figure 1 shows the seasonally adjusted level of GDP along with quarterly growths. The growth between Quarter 1 2017 and Quarter 2 2017 is the 18th consecutive quarterly increase and continues the UK’s period of growth since Quarter 1 2013.

When looking at UK GDP growth in volume terms in the current quarter compared with the same quarter a year ago, GDP increased by 1.5% between Quarter 2 2016 and Quarter 2 2017. Growth on this basis slowed slightly when compared with the 1.8% growth seen between Quarter 1 2016 and Quarter 1 2017.

Implied deflator

The gross domestic product (GDP) implied deflator at market prices for Quarter 2 2017 is 2.1% above the same quarter of 2016. The GDP implied deflator is calculated by dividing current price (nominal) GDP by chained volume (real) GDP and multiplying by 100 to convert to an index. It is not used in the calculation of GDP; the deflators for expenditure components, which are the basis for the implied GDP deflator, are used directly in the compilation of real GDP.

GDP per head

GDP per head is calculated by dividing GDP in chained volume measures by the latest population estimates and projections. It is not a measure of productivity or well-being, but is a useful statistic as it removes the impact of the changing size of the population from headline GDP figures.

In Quarter 2 (Apr to June) 2017, GDP per head grew by 0.1% compared with Quarter 1 (Jan to Mar) 2017.

GDP per head is now 2.1% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 2015 (Figure 2).

The population estimates used in this release are those published on 22 June 2017 and the population projections used are those published on 29 October 2015.

The output approach to measuring gross domestic product (GDP) involves estimating production activity within the UK economy. It increased by 0.3% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017 and was unrevised from the second estimate of GDP.

In Quarter 2 2017:

• agriculture decreased by 0.1%

• production decreased by 0.3%

• construction decreased by 0.5%

• services increased by 0.4%

Services

The largest component within the output approach of GDP is the services industries, which drove the growth in the output measure of GDP in Quarter 2 2017. Growth was broad-based, with all four sub-sectors of the services industries increasing between Quarter 1 2017 and Quarter 2 2017. The largest contribution to quarterly GDP growth was distribution, hotels and restaurants, with 0.13 percentage points; within this industry group the largest contributor to growth was retail trade excluding motor vehicles and motor cycles. The next largest contribution to quarterly GDP growth was distribution, hotels and restaurants, with 0.12 percentage points; within this industry group, computer programming, consultancy and related activities provided most of the increase.

Further detail on the services industries’ lower-level components can be found in the Index of Services statistical bulletin.

Production

Within production, three of the four components decreased between Quarter 1 2017 and Quarter 2 2017, resulting in a decline in total production output. Water supply and sewerage industries decreased by 1.0%, while manufacturing (the largest component of production) and electricity, gas and steam and air conditioning both decreased by 0.3%. These decreases were moderated by an increase in mining and quarrying, at 0.6%.

There are small revisions to the production and services components of the output approach, resulting from improvements to imputation methodology in the Monthly Business Survey (MBS). An article outlining the change in methods and the impact on aggregate estimates was published today (29 September 2017).

Construction

Construction output was estimated to have decreased by 0.5% in the second quarter of 2017, which has been revised upwards from negative 1.3% in the second estimate of GDP. This decrease compares with increases in all quarters since Quarter 4 (Oct to Dec) 2015. Further information relating to the most recent quarter can be found in the Construction output in Great Britain statistical bulletin.

There have been upwards revisions to construction throughout the quarterly tail (2016 onwards). The main causes of these revisions are a re-categorisation of low employment, large turnover business (to ensure appropriate sampling weights are applied), the impact of revised methodology for the labour component of new work price indices and increases from the late return of survey data. More information on these changes is available in the impact of improvements to construction statistics article.

Agriculture

Agriculture, the sector that makes up the smallest proportion of total output, decreased by 0.1% into Quarter 2 2017.

Figure 3 shows the contributions to growth from the sectors of output. The services industries are the only positive contributor to output GDP growth in Quarter 2 2017, at 0.3 percentage points. Production, construction and agriculture neither added to nor detracted from growth in quarterly GDP to one decimal place.

The expenditure approach to measuring gross domestic product (GDP) increased by 0.3% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017. The expenditure approach is the sum of all final expenditures within the economy, that is, all expenditure on goods and services that are not used up or transformed in the production process, that is, final consumption (not intermediate) for the whole economy.

Household final consumption expenditure (HHFCE)

HHFCE or household spending grew by 0.2% between Quarter 1 2017 and Quarter 2 2017. This was the lowest HHFCE quarterly growth figure since Quarter 4 (Oct to Dec) 2014 and is in line with a wider narrative of a deterioration of the economic position of consumers in the start of 2017.

As highlighted in the second estimate of GDP, the slowdown in growth in household spending in Quarter 2, compared with 0.4% growth in Quarter 1, was driven by a decline in growth in household expenditure on transport (including motor cars). Household expenditure on transport declined by 2.7% in Quarter 2 compared with growth in Quarter 1. Since the publication of the second estimate of GDP we have received improved source data for use in the calculation of household expenditure on cars. The increased Vehicle Excise Duty on high-polluting vehicles (which came into force in April 2017) led to consumers bringing forward planned new car purchases, leading to a subsequent fall-off in purchases in the latest quarter. This is corroborated in reports from the Society of Motor Manufacturers and Traders (SMMT).

Data for Quarter 3 (July to Sept) 2016 has been revised downwards as a result of revisions to the domestic HHFCE with revisions across a number of different types of commodities contributing to the revision. Data for Quarter 4 2016 has also been subject to downwards revisions. These revisions are partly linked to taking on improved source data relating to tourism from the International Passenger Survey (IPS), which increased the estimate of foreign tourist expenditure in the UK but decreased the estimate of UK household expenditure abroad. Both of these have the effect of decreasing the national HHFCE estimate, which captures the spending of UK households. This coincides with the depreciation of sterling in the second half of 2016.

The combination of these changes means household spending started to slow earlier than originally estimated.

Further information can be found in the Consumer trends release.

General government final consumption expenditure (GGFCE)

GGFCE showed growth of 0.1% in Quarter 2 2017. The largest contributor to this growth was healthcare, which was partially offset by a fall in public administration expenditure by central government.

Revisions since the second estimate of GDP have been due to methods changes incorporated in the annual Blue Book 2017 process, which are discussed in the alignment between public sector finances and national accounts: September 2017 article released today (29 September 2017) and the replacement of some budget data with outturn data.

Gross fixed capital formation (GFCF)

In Quarter 2 2017, GFCF increased by 0.6% compared with Quarter 1 2017. Within the sectors of GFCF, business investment increased by 0.5% between Quarter 1 and Quarter 2, this was revised upwards from the second estimate of GDP. When looking at the asset breakdown of GFCF, information and communications technology (ICT) equipment and other machinery and equipment was the only asset to show an increase into Quarter 2, at 8.1%, this asset consists of ICT equipment, general use machinery such as engines and turbines, and special use machinery such as domestic appliances and agricultural equipment. All other assets remained flat or decreased in this period.

Upwards revisions to business investment growth in 2016 and into 2017 relate to a number of improvements including; the introduction of improved source data, which have impacted the transport asset; taking on revised estimates for artistic originals within intellectual property products; and the removal of adjustments in place to address known areas of previous survey misreporting identified by the introduction of the QCAS survey in 2015, affecting other machinery and equipment and other buildings and structures. Further details can be found within the Business investment release.

Trade in goods and services

In Quarter 2 2017, net trade provided the largest contribution to GDP growth at 0.4 percentage points, due to total trade exports increasing by 1.7% and only a small increase in total imports, which increased by 0.2%, between Quarter 1 and Quarter 2 2017. The increase in total exports was due to an increase of 4.0% in goods exports, with a decrease in services exports of 1.1% providing a partial offset.

Across the quarters of 2016 there were a mixture of positive and negative revisions to the quarter-on-quarter UK trade balance. Overall, these had the effect of weakening the contribution of net trade to GDP in the early part of 2016 and strengthening the contribution in the latter part of 2016 with this stronger net trade position continuing into 2017.

The latest monthly trade figures are available in the UK trade release.

Figure 4 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures from Quarter 3 (July to Sept) 2015 to Quarter 2 2017. In the latest quarter the largest contribution to growth was from net trade, at 0.4 percentage points led by growth in exports. Gross capital formation (GCF) contributed negatively to growth in GDP at 0.3 percentage points.

Nominal gross domestic product (GDP) increased by 0.7% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017.

The income approach measures income generated by production in the form of gross operating surplus (profits), compensation of employees (income from employment) and mixed income (self-employment income) for the whole economy.

All data quoted in the rest of this section are in current prices seasonally adjusted.

Within the income measure of GDP, three out of four components increased between Quarter 1 2017 and Quarter 2 2017.

Compensation of employees (CoE)

CoE, which includes wages and salaries, and employers' social contributions, showed positive growth of 1.0% (seasonally adjusted) into Quarter 2 2017.

As part of the quality assurance process to understand household income patterns following the changes to tax on dividends, a provisional real time HM Revenue and Customs (HMRC) estimate of Pay-as-You-Earn (PAYE) total pay has been used to help guide the growth of the CoE component in the quarterly tail. This has led to some revisions where CoE has been subject to quality adjustments to bring the data into line with the better administrative HMRC data source.

Taxes on products and production less subsidies

Taxes on products and production less subsidies showed an increase of 1.2% in Quarter 2 2017, that contrasts with a decline of 1.1% seen in Quarter 1 2017.

Revisions since the second estimate of GDP have been due to methods changes incorporated in the annual Blue Book 2017 process, which are discussed in the alignment between public sector finances and national accounts: September 2017 article.

Other income

There was also an increase in other income, of 0.7%. This category includes mixed income and the operating surplus of the non-corporate sector.

Gross operating surplus of corporations

Gross operating surplus of corporations was the only component showing a decline, at negative 0.2% representing a small decline in the profits of companies. In the compilation of quarterly GDP, balancing adjustments are applied to components to achieve a balanced dataset (see section 10). As part of the annual Blue Book process, all balancing adjustments are reviewed. For gross operating surplus of corporations a number of balancing adjustments applied in previous quarters have been removed in this round.

Figure 5 shows the contribution made by income components to current price GDP. CoE was the largest contributor to the income measure of GDP, contributing 0.5 percentage points to growth in the income measure of GDP.

The estimates quoted in this international comparison section are the latest available estimates at the time of preparation of this statistical bulletin and may subsequently have been revised.

During Quarter 2 (Apr to June) 2017, the UK experienced the slowest growth (0.3%) among European and Group of Seven (G7) countries, just below that of Italy, whose economy grew by 0.4%. In the same period, Canada experienced the highest growth at 1.1%. This is the second consecutive quarter in which the UK has had the weakest economic growth of these countries, as during Quarter 1 (Jan to Mar) 2017 the UK experienced 0.3% growth, joint slowest with Japan and the USA.

All of the areas included within our international comparisons saw positive growth in Quarter 2 2017. The USA experienced growth of 0.8%, whilst Japan and Germany experienced growth of 0.6% (Table 2). The European Union (EU28) grew by 0.7%, marking 17 consecutive quarters of positive growth and in the same period, the group of euro area countries (EA19) grew by 0.6%.

All G7 countries are currently above pre-economic downturn peaks except for Italy, where GDP remains 6.4% below the pre-downturn peak (Quarter 1 2008). Canada shows signs of the strongest recovery at 16.8%. The UK has the fourth strongest rate at 9.3%, while the USA has the second strongest of 14.4%. Germany, France and Japan have rates of 9.8%, 5.8% and 4.2% respectively.

The data used for these international comparisons are gathered from the Organisation for Economic Co-operation and Development’s website excluding the data from the UK, which is compiled within the Office for National Statistics.

Growth in UK GDP is now 9.3% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 (Apr to June) 2013, one quarter earlier than previously estimated.

Release content

Data included within this release are seasonally adjusted, however, non-seasonally adjusted data are available within the UK Economic Accounts (UKEA). These data can be downloaded directly from the UKEA dataset and on the UKEA main aggregates dataset table.

Economic context

A monthly economic commentary has been published alongside this release, presenting new analysis on the latest economic data.

Business investment

Further details on business investment along with revision triangles and a real time database are available within the datasets of the Business investment release, published on 29 September 2017.

Index of Services

The Index of Services publication was published on 29 September 2017 and includes data for July 2017.

National Accounts articles

We have published a number of articles listing the impact of changes being introduced as part of the UK National Accounts Blue Book 2017 publication. A list of all National Accounts articles is available.

GDP release schedule consultation

We ran a consultation on proposed changes to the GDP release schedule and the introduction of monthly GDP estimates, which closed on 14 September 2017. We will publish our response to the consultation on 19 October.

VAT project

The latest VAT turnover research article was published on 1 June 2017, which outlined our plans to use VAT turnover in the compilation of Quarterly National Accounts July to September 2017 and the Index of Services October 2017 bulletins, which are both due for publication on 22 December 2017. In November 2017, a further article will be published, which will review the methodological improvements and provide further detail on implementation plans.

Annual benchmarks

In the next quarterly national accounts release (22 December 2017) we will take on the 2016 annual benchmarks. These mostly relate to the components of GDP that include data from annual surveys such as the annual International Trade in Services (ITIS) survey and Financial Inquiries surveys. These updates will help to improve the quality of our estimates where we are able to replace forecast and flash estimates with annual survey data.

The Gross domestic product (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 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.

Important quality issues

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 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 “Validation and quality assurance” section in the Quality and Methodology Information report analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations. In addition to this analysis, section 11 of the Revisions to gross domestic product in Blue Book 2016 article updates the metrics used to test revisions performance to answer the question “Is GDP biased?”

Reaching the GDP balance

The different data content of the three approaches – the output approach, the expenditure approach and the income approach – dictates the approach taken in balancing quarterly data. In the UK, there are more data available on output than in either of the other two approaches. However, to obtain the best estimate of GDP (the published figure), the estimates from all three approaches are balanced to produce an average, except in the latest quarter where the output data takes the lead due to its larger data content.

Information on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP is available.

Alignment adjustments, found in Table M of the quarterly national accounts datasets in this release, have a target limit of plus or minus £2,000 million on any quarter. To achieve the balance through alignment, balancing adjustments are applied to the expenditure and income components of GDP as required. They are applied to those individual components where data content is particularly weak in a given quarter due to a high level of forecast content.

The size and direction of the quarterly alignment adjustments in Quarter 2 2017 indicate that in this quarter the level of expenditure and income are higher than the level of output.

Table 3 shows the balancing adjustments applied to the GDP estimates in this publication.

Further information

We are committed to ensuring all information provided is kept strictly confidential and will only be used for statistical purposes. Further details regarding confidentiality can be found in the respondent charters for businesses and households.