GDP quarterly national accounts, UK: January to March 2019

• UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.5% in Quarter 1 (Jan to Mar) 2019, unrevised from the first estimate for this quarter.

• When compared with the same quarter a year ago, UK GDP increased by 1.8% to Quarter 1 (Jan to Mar) 2019; up from 1.4% in the year to Quarter 4 (Oct to Dec) 2018.

• The services sector provided the largest contribution to growth in the output approach to measuring GDP, while production also contributed positively, due largely to growth of 1.9% in manufacturing output.

• Household expenditure, government consumption and investment contributed positively to GDP growth in Quarter 1 2019, while net trade contributed negatively.

• Nominal GDP increased by 0.9% in Quarter 1 2019, revised down from the first estimate of 1.0%, in part reflecting weaker than expected wages and salaries data.

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
• 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 first quarterly estimate to around 90% 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 (PDF, 317KB).

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.

In a change to the National Accounts Revisions Policy, the dataset is only open for revision in Quarter 1 (Jan to Mar) 2019. The latest estimates include revisions to lower-level GDP components, due to the receipt of new survey returns as well as updated seasonal factors reflecting the latest data. Given the revisions window in this quarterly national accounts release, Value Added Tax (VAT) turnover data for Quarter 4 (Oct to Dec) 2018 have not been incorporated into these estimates.

International Financial Reporting Standards (IFRS16)

In January 2019, a new reporting standard took effect for those businesses using accountancy framework International Financial Reporting Standards (IFRS16). IFRS16 Leases brings the reporting of operating leases onto balance sheets. This has impacted how some businesses have reported on their fixed assets, mainly through our Quarterly Acquisition and Disposal of Capital Assets Survey (QCAS), used in the compilation of gross fixed capital formation (GFCF) and business investment.

While we recognise there is a change to the accounting standards for some businesses this quarter, there has been no change to national accounts standards on the treatment of leases, as we need to be consistent with the European System of Accounts 2010: ESA 2010, which specifies that operating leases should be excluded.

To assess the impact of IFRS16’s introduction on GFCF and business investment estimates, we contacted around 290 QCAS respondents with large movements in their data to ask them which accountancy framework they used and, if using the IFRS framework, what if any impact IFRS16 has had on their data for Quarter 1 (Jan to Mar) 2019.

As a result, we have made an adjustment of approximately £240 million to remove the quantified impact of its introduction and better reflect underlying growth for GFCF and business investment. This adjustment has been applied mainly to reflect the impact on generally larger companies. The asset most affected by the introduction of IFRS16 in this revised dataset was ICT equipment and other machinery and equipment.

We will continue to adjust for IFRS16’s impact going forward due to the inclusion of operating leases being contrary to the requirements of ESA 2010.

We will also continue to monitor the impact of IFRS16’s introduction in Quarter 2 (Apr to June) 2019 as some companies we contacted told us they would introduce IFRS16 at the start of the new financial year (April 2019 to March 2020).

New GDP publication model survey

Please take the time to complete our survey on the new GDP publication model, which was introduced in July 2018.

UK gross domestic product (GDP) is estimated to have increased by an unrevised 0.5% in Quarter 1 (Jan to Mar) 2019. This follows from the slowdown in growth in Quarter 4 (Oct to Dec) 2018 when GDP grew by 0.2%. In comparison with the same quarter a year ago, UK GDP increased by an unrevised 1.8%, its fastest rate since Quarter 3 (July to Sept) 2017 (Figure 1).

The pickup in the first quarter is in part due to the profile of the monthly path of late, where a relatively weak figure for December 2018 has fed through to the quarterly figure. More information on the monthly path of GDP can be found in the latest GDP monthly estimate, UK: April 2019 release.

The implied GDP deflator represents the broadest measure of inflation in the economy, reflecting changes in the price of all goods and services that comprise GDP. This includes the price movements in private and government consumption, investment and the relative price of exports and imports.

In the year to Quarter 1 2019, the GDP deflator increased by an unrevised 1.6%, continuing the easing that has been seen in recent quarters. Despite the headline figure being unrevised, there have been offsetting revisions to lower-level components of the GDP deflator, most notably in gross capital formation and imports (Figure 2).

The quarter-on-quarter movement in the implied deflator reflects weakness in the implied import deflator for goods, which has been driven by falls in the price of fuel imports – including gas and electricity and crude and refined oil – due to a fall in oil prices in Quarter 1 2019.

There has also been a notable downward revision in the implied deflator for gross capital formation in Quarter 1 2019, although this broadly reflects erratic movements in non-monetary gold. This has been partially offset by a marginal increase in the implied deflator for government consumption, primarily reflecting a fall in the volume of government social security administration expenditure.

Nominal GDP increased by 0.9% in Quarter 1 2019, a downward revision of 0.1 percentage points, marking a pickup on the quarter.

Table 1 provides an overview of some of the headline economic indicators for the UK.

The output measure of gross domestic product (GDP) increased by an unrevised 0.5% in Quarter 1 (Jan to Mar) 2019. Services and construction output estimates have been revised upwards, with the latest estimates showing increases of 0.4% and 1.4% respectively in the first quarter of the year. In contrast, production output has been revised downwards and is now estimated to have increased by 1.1% in Quarter 1 2019 (Figure 3).

Services output increased by a revised 0.4% in Quarter 1 2019, a slight easing from the previous quarter (Figure 4). This slowdown was also seen in the UK services Purchasing Managers Index (PMI) reading of 50.1 in Quarter 1 2019, the weakest it has been since Quarter 4 (Oct to Dec) 2012.

In March 2019, the services PMI marked its first contraction in activity since 2012, which was attributed to how “corporate clients had opted to delay spending in response to political uncertainty”.

The increase in Quarter 1 2019 was driven mainly by wholesale retail and motor trade, which grew 1.2% in the first quarter of the year. This reflected a pickup in retail sales, with an increase in the quantity bought across all stores, with the exception of department stores and household goods stores. However, the Bank of England’s Agents’ Summary Survey paints a weaker picture, the latter attributing the weakening demand for household goods to the relatively subdued UK housing market, in addition to the recent political uncertainty.

Transport, storage and communication increased by 1.0%, following strong growth throughout most of 2018. Some of this has been offset by declines in other areas, such as business services and finance, which fell 0.1% in Quarter 1 2019, despite strength in computer programming.

There has also been a continued decline in financial and insurance activities, which fell by a revised 1.0% in the first quarter of 2019, reflecting the incorporation of new financial services data from the Bank of England. This fall is also consistent with the Bank of England’s Agents’ Summary Survey, which attributed some of the recent decline in financial services to weaker demand, reflecting recent political uncertainty as well as worries around trade tensions between the US and China.

Production output is estimated to have increased by 1.1% in Quarter 1 2019, revised from its previous estimate of 1.4% (Figure 5), reflecting the receipt of new survey estimates for the manufacturing, and mining and quarrying industries. Manufacturing output is now estimated to have increased by 1.9%, its strongest rate since Quarter 3 (July to Sept) 1999 when manufacturing output grew by 2.1%.

The strong growth in manufacturing is consistent with an increase in activity ahead of the UK’s originally intended departure date from the European Union, and relates to the timing of deliveries from manufacturing businesses to their customers. However, we are unable to clearly quantify the effect of this.

There have been concerns that there may be disruptions at the UK border, and there has been external survey evidence that points to a sharp uptick in businesses increasing their inventories of stocks. For instance, the latest Bank of England’s Agents’ Summary shows that “around half of all respondents had been building inventories as part of their contingency planning for Brexit”, while almost one-third of respondents to the latest Decision Maker’s Panel Survey reported an increase in stock levels.

It is difficult to unpick how much of the increase in manufacturing output in Quarter 1 2019 might reflect the increase of domestic output produced by UK manufacturers in response to the stockpiling demands by UK and/or foreign manufacturers. This pickup in manufacturing was also captured in the Markit UK Manufacturing PMI for March 2019, which recorded a 13-month high in manufacturing activity due to “companies stepping up production to build-up inventories in advance of Brexit and to also meet rising inflows of new work”.

Looking at the particular components of manufacturing reporting growth, strength is mainly attributed to food, beverages and tobacco, driven by an increase in the manufacture of alcohol products, reflecting strong export demand.

The metal product manufacturing industry also recovered from a fall in the final quarter of 2018, while there has also been notable growth in the relatively volatile pharmaceuticals industry, which increased by a revised 5.9% in the first quarter of 2019 (Figure 6). This was driven mainly by growth in exports of pharmaceutical products, some of which was likely in anticipation of the UK’s original exit date from the European Union at the end of March 2019.

Following receipt of new data from the Department for Business, Energy and Industrial Strategy (BEIS), mining and quarrying output estimates have been revised down by 1.1 percentage points. The latest estimates show that this industry grew by 0.9% in Quarter 1 2019, following a decline of 0.8% in Quarter 4 2018. This quarterly increase is predominantly due to relatively new oil fields maturing in production capacity, which has led to an increase in output in the first three months of 2019.

Output in the electricity, gas, steam and air industry fell for the second consecutive quarter, decreasing by 2.8% in Quarter 1 2019, with the fall due primarily to warmer than average temperatures during the first three months of the year. There was also a decline of 0.8% in the water supply and sewerage sector, driven by widespread falls across the industry.

Construction output grew by 1.4% in the first quarter of the year, revised up by 0.4 percentage points. This follows from a weak end to last year when construction fell by 0.5% in Quarter 4 2018. The latest Bank of England’s Agents’ Summary Survey notes how “heightened caution around business investment has resulted in some commercial developments being paused or delayed”.

The expenditure measure of gross domestic product (GDP) increased by 0.5% in Quarter 1 (Jan to Mar) 2019. Despite some revisions to lower-level components of the expenditure measure of GDP, private consumption, government consumption and gross capital formation (GCF) continued to contribute positively to growth, while net trade subtracted from GDP growth in the first quarter of 2019 (Figure 7).

There have been some notable movements in imports of unspecified goods in the first quarter of 2019. These unspecified goods include non-monetary gold (NMG) and account for the large and offsetting impacts to gross capital formation and net trade.

These movements do not affect headline GDP as they are recorded as equivalent offsetting impacts in the UK National Accounts, but this is reflected in the composition of GDP growth. More information on how non-monetary gold (NMG) features in GDP is available. As such, this has been reflected in a record high level of the acquisition less disposal of valuables.

Private consumption – which consists of both households and non-profit institutions serving households (NPISH) sections – increased by 0.6% in Quarter 1 2019, revised down slightly from the first estimate of 0.7%.

External evidence points towards continued weakness in consumer demand. The latest Bank of England Agents’ Summary of Business Conditions states that “uncertainty about Brexit and the wider economy weighed on spending” in Quarter 1 2019, while the GfK Consumer Confidence index remained unchanged at negative 13 in March 2019, below its long-run average.

Household consumption of miscellaneous goods and services – which includes spending on other financial services – increased by 2.9% in Quarter 1 2019, following a fall of 1.0% in Quarter 4 (Oct to Dec) 2018. Miscellaneous goods and services made the largest overall contribution to household consumption in the first quarter of the year, largely as a result of increased expenditure on other financial services.

Net tourism also made a notable positive contribution to growth in Quarter 1 2019, following a fall in the previous quarter. This reflected a fall in foreign tourist expenditure in the UK, which more than offset the increase in UK resident’s expenditure abroad. More information on the treatment of tourism in the UK national accounts is available. In contrast, there has been a notable fall in household consumption of restaurant services, marking a fall back following the final quarter of 2018.

Government consumption is estimated to have increased by 0.8% in Quarter 1 2019, following an increase of 1.3% in the previous quarter. This increase reflects widespread growth in a number of areas including health, which increased by 0.6%, and other functions of central government, such as general public services and economic affairs.

The quarterly growth of 0.8% in government consumption in Quarter 1 2019 represents a downward revision of 0.6 percentage points compared with the first quarterly estimate. This was predominantly due to a downward revision to general public services, reflecting new data on government social security administration expenditure.

Gross fixed capital formation (GFCF) increased by 1.2% in the first three months of 2019, revised down from the first estimate of 2.1%. This primarily reflects revisions to government investment, which is now estimated to have increased by 5.2%, compared with its previous estimate of 8.1%, due to initial budget estimates being replaced by provisional financial year data. The quarterly increase was due to increases across a number of central government departments. Government consumption and investment figures are based on the latest available information, provided by government departments including HM Treasury and local authorities.

Following four consecutive quarters of decline throughout 2018, business investment grew by a revised 0.4% in the first quarter of 2019 – revised downwards by 0.1 percentage points compared with the first quarterly estimate for Quarter 1 2019. At an asset level, investment in other buildings and structures has been the main contributor to growth. Some of the growth in the investment in buildings has been offset by a fall in investment in transport, which continued its recent decline in the first quarter of the year.

Previous analysis has highlighted how businesses have held back on capital spending at a point in the cycle where previous historical episodes would point to a pickup. These figures should be interpreted with some caution as early estimates of business investment can be prone to revision.

External evidence suggests that investment intentions remained weak in Quarter 1 2019. The latest Bank of England Agents’ Summary of Business Conditions reported that investment intentions fell sharply in manufacturing, with a modest decline in services. Political uncertainty continues to be cited as having a negative impact on investment, as seen in the Quarter 1 2019 Decision Maker’s Panel, while the latest Deloitte Chief Financial Officers (CFO) Survey states that “more than half of CFOs continue to rate current levels of uncertainty as high or very high”.

It should be noted that GFCF and business investment estimates remain subject to relatively higher levels of uncertainty in this release, reflecting the introduction of International Financial Reporting Standard 16 (IFRS16) Leases in January 2019 – further information can be found in the Things you need to know about this release section.

There has been much interest in the extent to which stock building has been taking place in the UK, which would be recorded under changes in inventories. Alignment adjustments and balancing adjustments are often applied to official inventories estimates to help balance the different approaches to GDP – more detail on these can be found in the Quality and methodology section of this publication.

When these adjustments are removed, the underlying data show a substantial increase of £6.6 billion in stocks being held by UK companies in the most recent quarter (Table 2). Data for previous periods are available.

The UK trade deficit widened to 3.7% of nominal GDP in Quarter 1 2019, compared with an initial estimate of 3.4%, representing the widest quarterly deficit on record. That said, this is largely a reflection of the sizeable increase of imports of unspecified goods, which includes non-monetary gold (NMG). Figure 8 shows that excluding unspecified goods, the trade deficit was at 1.7% of nominal GDP in Quarter 1 2019. For more information on trade statistics, please see the UK trade: April 2019 release.

Trade in goods export volumes grew by 3.9% in Quarter 1 2019, reflecting increases in machinery and transport equipment and miscellaneous manufactures, while trade in services exports fell by an offsetting 1.3% due to falls in telecommunications, computer and information technology, financial services and insurance. The rise in imports reflects a 14.3% increase in trade in goods imports – which reflects the increase in unspecified goods, chemicals and machinery and transport equipment – alongside a 1.4% increase in trade in services imports.

Nominal gross domestic product (GDP) increased in Quarter 1 (Jan to Mar) 2019, rising by a slightly downwardly revised 0.9% (Figure 9). This follows an increase of 0.7% in the final quarter of 2018.

The revision reflects updated wages and salaries estimates, which have been downwardly revised from 0.8% to 0.1%. This was driven by the receipt of new survey data replacing original forecasts, with end of financial year bonus payments in March 2019 weaker than originally expected, as highlighted in the recent Labour market overview, UK: June 2019. This was partially offset by an upward revision to employers’ social contributions, which are now estimated to have increased by 1.7% in the first quarter of the year.

Gross operating surplus has increased by 2.5% – a sharp pickup from the previous quarter – reflecting stronger figures for private non-financial corporations in particular, and due partially to the application of an alignment adjustment (see the Quality and methodology section for more information). Other income – which includes mixed income and the operating surplus of the non-corporate sector – increased by 1.0%, slowing slightly from the growth rates recorded in 2018.

All areas included within our international comparison saw positive growth in Quarter 1 (Jan to Mar) 2019 for the first time since Quarter 4 (Oct to Dec) 2017. Italy’s economy strengthened by 0.1% in Quarter 1 2019, recovering from two consecutive quarters of negative growth. The strongest growth seen in the latest quarter was 0.8% in the USA.

European Union (EU28) economies grew by an average of 0.5% in Quarter 1 2019, the strongest growth seen since Quarter 4 2017. This means that average GDP growth between countries in the area has been positive for 24 consecutive quarters.

G7 countries saw an average of 0.6% growth in Quarter 1 2019, following an increase of 0.4% in the previous two quarters. Most G7 countries are above their pre-economic downturn peaks, the exception being Italy where GDP remains 5.2% below the pre-downturn peak (Quarter 1 2008). The USA is showing the biggest recovery over this period, up 20.6% since the downturn. Canada is showing the second-largest recovery, up 19.2% over the period, but has seen growth slow to 0.1% in each of the latest two quarters. UK GDP is now 12.6% above the level recorded in Quarter 1 2008.

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. The data are gathered from the Organisation for Economic Co-operation and Development’s website excluding the data from the UK, which are compiled by the Office for National Statistics.

Release content

All data in this bulletin are seasonally adjusted estimates. 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. Data published in the UKEA reflect data as published on 28 June 2019 and are consistent with the data in this release.

A number of other economic indicators were published on 28 June 2019. These include:

• Business investment
• Quarterly sector accounts
• Balance of payments
• Consumer trends

Monthly GDP

On 10 June 2019, estimates of Monthly GDP were published for April 2019. The Index of Services, Index of Production and Construction output in Great Britain publications covering the period up to January 2019 are also available.

Blue Book 2019

Each year we produce an annual update to the UK National Accounts in the Blue Book and Pink Book and the associated releases. As already announced, the Blue Book and Pink Book 2019 consistent datasets will be published on 30 September 2019.

Details have already been provided on the scope in the article Latest developments and changes to be implemented in Blue Book and Pink Book 2019. Indicative impacts on headline gross domestic product (GDP) components for the years 1997 to 2016 were published on 27 June 2019 in the article Blue Book 2019 indicative impacts on GDP current price and chained volume measure estimates: 1997 to 2016.

This year, due to the very demanding set of changes being put through in the annual update, we are exceptionally not going to fully reconcile 2017 annual data, instead producing an indicative balance to allow further time for final quality assurance of the data.

As a consequence, the reference year and last base year for all chained volume measure series will remain as 2016. Further articles are planned ahead of the 30 September 2019 releases as detailed in Table 4.

Gross value added at factor cost

Within the UK Economic Accounts (UKEA) we publish four series presenting gross value added (GVA) at factor cost (identifiers KGN7, KGN6, KGN5 and YBHH).

In the March 2019 quarterly national accounts release we announced that we are considering withdrawing these series from publication. This is because GVA at factor cost is not recognised with the UN System of National Accounts 2008: SNA 2008 framework, therefore, we have concerns over the methodology used to calculate these estimates.

We have received a small amount of user feedback and we welcome further user feedback around our proposal to remove these series from the UKEA publication from September 2019.

Regional gross domestic product

On 18 June 2019, we announced our plans to publish quarterly estimates of GDP for each of the regions of England and for Wales.

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 “Accuracy and reliability” 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.

Reaching the GDP balance

The different data content and quality 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 in the short-term 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 two quarters 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 data tables in this release, have a target limit of plus or minus £2,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed; this has not been the case in Quarter 1 (Jan to Mar) 2019.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where required. They are applied to the individual components where data content is particularly weak in a given quarter due to a higher level of forecast content. The balancing adjustments applied in this quarter are shown in Table 5, the resulting series should be considered accordingly.