GDP quarterly national accounts, UK: July to September 2018

Revised quarterly estimate of gross domestic product (GDP) for the UK. Uses additional data to provide a more precise indication of economic growth than the first estimate.

Nid hwn yw'r datganiad diweddaraf. Gweld y datganiad diweddaraf

9 November 2018

During the final quality assurance of the Blue Book 2018 consistent Quarterly National Accounts dataset an error was discovered in the General Government Final Consumption Expenditure (GGFCE) chained volume measure (CVM). The error affects 2005 data, increasing annual GGFCE growth by around 1.7 percentage points from 2.3% to 4.0%. GGFCE in current prices is unaffected.

There is no impact on headline GDP growth or the GDP implied deflator, as the impact during 2005 would be offset by revisions to the expenditure alignment adjustment.

The GGFCE CVM series will be corrected and there will be a review of the alignment adjustment in the Blue Book 2019 consistent Quarterly National Accounts dataset.

Email Charlotte Richards

Dyddiad y datganiad:
21 December 2018

Cyhoeddiad nesaf:
11 February 2019

1. Main points

  • UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.6% between Quarter 2 (Apr to June) 2018 and Quarter 3 (July to Sept) 2018, unrevised from the first quarterly estimate of GDP.

  • GDP was estimated to have increased by 1.8% between 2016 and 2017, revised upwards by 0.1 percentage points from the previous estimate.

  • At headline level the GDP dataset is largely unrevised, with a 0.1 percentage point revision to Quarter 3 2017; revisions reflect the inclusion of annual benchmarks from a number of sources for 2017 and the incorporation of administrative Value Added Tax turnover data in the output approach to measuring GDP for Quarter 2 2018.

  • Services remained the strongest contributor to growth in the output approach to GDP in Quarter 3 2018, with growth easing slightly from the previous quarter; construction and manufacturing also contributed positively to growth.

  • In the expenditure approach to measuring GDP, household consumption grew by 0.5% in Quarter 3 2018, unrevised from the first estimate; various revisions to net trade estimates led to a widening of the trade balance, while business investment has decreased for three consecutive quarters.

  • Compensation of employees made the largest contribution to growth in the income measure of GDP, while various new taxes have been incorporated to align estimates with those in public sector finances.

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2. Things you need to know about this release

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 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.

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.

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3. UK economy grows by an unrevised 0.6% in Quarter 3 2018

UK gross domestic product (GDP) is estimated to have increased by 0.6% in Quarter 3 (July to Sept) 2018, unrevised from the first quarterly estimate of GDP. In comparison with the same quarter a year ago, the UK economy has grown by an unrevised 1.5%. This is a slight pickup from previous quarters in the year, although the longer-term picture remains one of relatively subdued growth compared with historic standards (Figure 1).

In line with the National Accounts Revisions Policy, all periods are open to revision from Quarter 1 (Jan to Mar) 2017 in today’s publication. These latest estimates include the incorporation of annual benchmarks of a range of surveys, Value Added Tax (VAT) turnover estimates for the first time for Quarter 2 (Apr to June) 2018 and additional survey returns. The latest estimates show that almost all quarterly growth rates of real GDP are unrevised (to one decimal place), the exception being Quarter 3 2017 where there has been an upward revision of 0.1 percentage points. As such, the headline picture is in line with previous estimates, showing that there has been some gain in momentum through the year. It reinforces the view that there was a temporary slowdown in the first quarter of the year, in which real GDP grew by an unrevised 0.1%, reflecting to some extent the effects of the adverse weather conditions. The pickup in the last two quarters partly reflects the increase in food and drink sales over the summer months, as consumers took advantage of the warmer weather and the World Cup.

This revision in Quarter 3 2017 has led to real GDP growth in 2017 being revised up from 1.7% to 1.8%. That said, this is against a backdrop of a strengthening global economy last year. Having been one of the fastest-growing G7 economies in 2016, the UK experienced GDP growth that was faster than only Italy in 2017. For further analysis of international comparisons, see Section 8.

Although revisions to quarterly real GDP growth are minimal, there are more widespread revisions to quarter on quarter a year ago estimates of real GDP growth (Figure 2). There have been upwards revisions of 0.2 percentage points to each of the quarters between Quarter 3 2017 and Quarter 2 2018. However, the latest estimates still point to a recent trend of relatively subdued growth.

There have been some revisions to lower-level estimates of output and expenditure. Figure 3 shows the expenditure contributions to cumulative GDP growth from Quarter 2 2016, comparing today’s estimates to the pre-referendum forecasts produced by the Office for Budget Responsibility (OBR) in March 2016. It also shows the picture that was published in the previous vintage of GDP, highlighting the impact of the revisions in today’s quarterly national accounts.

Cumulative GDP growth over this period has been largely unrevised, with the latest estimates showing that GDP has increased by 4.0% since Quarter 2 2016, slightly revised from 3.8% in the previous estimate. This compares with the 5.0% that was forecast in March 2016 by the OBR, which was conditioned on a vote to remain in the European Union. However, it is important to note that the outlook produced at the time would have been subject to forecast errors, with subsequent unforeseen developments in the UK and global economy helping to explain why these comparisons do not reflect a precise estimate.

It also illustrates the revisions that are published today, which show that there has been less external rebalancing than previously estimated. There have been improvements incorporated into the latest estimates of trade flows, which explains why net trade is now estimated to have subtracted 0.2 percentage points from GDP growth over this period. This is in contrast to the positive contribution of 0.8 percentage points recorded in the previous estimate. See Section 7 for more information on the revisions to trade.

The implied GDP deflator represents the broadest measure of inflation in the domestic 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 3 2018, the implied GDP deflator increased by a revised 2.1%, slightly up from the previous estimate of 2.0%. Growth in the government consumption deflator picked up to 3.4% over the year, the strongest rate since Quarter 3 2009, however, due to its nature it can be difficult to measure government inflation. The growth in the government consumption deflator was driven by increases to nominal estimates of government expenditure. This was primarily due to final outturns for local government replacing budgetary data in the financial year ending 2018 and changes in the way VAT returns are processed. For more information on these revisions, see Section 7. The revision to the GDP implied deflator in Quarter 3 stems predominantly from an upward revision to the household consumption deflator, partially offset by downwards revision to the exports deflator.

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4. A largely unrevised picture to the main components of output in Quarter 3 2018

The output measure of gross domestic product (GDP) increased by an unrevised 0.6% in Quarter 3 (July to Sept) 2018. Despite some lower-level output revisions, the recent narrative remains largely unchanged (Figure 4). Following a strong summer, in part driven by buoyant food and drink sales as consumers took advantage of the warmer weather and the World Cup, services output eased slightly to 0.5% in Quarter 3. This was revised up from 0.4% in the first estimate. Construction output growth picked up in Quarter 3, following a weak start to the year that was affected by the heavy snowfall, increasing by an upwardly revised 2.3%. Manufacturing output fell in the first two quarters of the year but rose by a revised 0.4% in the latest quarter.

Growth in services output in Quarter 3 2018 has been revised up slightly to 0.5%, reflecting broad-based revisions to a number of industries, including an upward revision of 0.6 percentage points to scientific administrative and support services. These revisions have been driven by the incorporation of Value Added Tax (VAT) data in Quarter 2 (Apr to June) 2018, as well as additional Monthly Business Survey (MBS) returns throughout 2018.

This represents a slight easing from the unrevised 0.6% growth recorded in Quarter 2 2018, where activity was relatively strong in the summer months. This largely reflected a pickup in retail trade, driven by buoyant food and drink sales as consumers took advantage of the warmer weather and the World Cup. Following growth of 1.7% in Quarter 2, growth in wholesale and retail trade slowed to 1.0% in Quarter 3 2018 (Figure 5). This slowdown in growth is corroborated by external evidence, including by the Confederation of British Industry (CBI) who noted “retail sales have cooled as the summer boost to the sector fades”. It also points towards subdued growth going forward as “firms grapple with weak household income growth and structural changes posed by digital disruption”. The latest insights from the British Retail Consortium (BRC) also imply a further slowdown in sales.

Figure 5 also shows the largest positive contribution to service sector growth came from transport storage and communication, which increased 1.5% in Quarter 3 2018. This is in part due to the computer programming industry, which continues to perform particularly well. Elsewhere, there has also been a pickup in growth in the business services and finance sector, driven by growth in the accounting and auditing industries. However, external evidence from Bank of England Agents Summary (PDF 149KB) notes that business services activity has eased somewhat in Quarter 3 2018, with their contacts citing that “there was tighter cost control due to heightened uncertainty ahead of Brexit”, while the latest CBI Services Sector Survey reports a slight fall in business service volumes in the more recent three-month period to November.

Output growth of the construction industry in Quarter 3 2018 is slightly stronger than first estimated, revised up from 2.1% to 2.3%, and remains the fastest quarterly rise since the first quarter of 2017. This revision is due to the incorporation of VAT data in Quarter 2 2018 for the first time, which has led to construction output being revised down from 0.8% to 0.5% in Quarter 2. The inclusion of VAT, as well as the incorporation of additional updated MBS returns and a review of seasonal adjustment, has resulted in activity in Quarter 3 2018 being revised up.

The increase in the value of construction work in Quarter 3 2018 in part still reflects a recovery following the relatively weak start to 2018, in which construction output fell by an unrevised 1.6% in the weather-affected first three months of the year, corroborated by business surveys at the time. Previous analysis in the first quarterly estimate of GDP showed that the Quarter 3 2018 construction growth was driven by particularly pronounced monthly movements, including weaker base growth in April 2018 and stronger growth in September 2018. The updated monthly figures that are consistent with today’s figures will be available in the Construction output in Great Britain: November 2018 publication, released on 11 January 2019.

Production output is now estimated to have increased by 0.6% in Quarter 3, following a fall of 0.7% in the previous quarter. The revisions to production have been driven by the incorporation of updated MBS and VAT data, although the picture is largely unchanged – there remains a bounce back in production output in Quarter 3 2018, in part reflecting the effects of the weather on energy supply in the first half of the year. Output increased across all four main production sectors, driven by manufacturing, where output increased by a revised 0.4% in Quarter 3. This was the first quarterly rise in 2018, following two consecutive quarters of contraction at the start of the year. This pickup is somewhat at odds with external survey evidence at the time, which has commented on an easing in domestic and export manufacturing output in Quarter 3.

The recovery in manufacturing output reflects a pickup across a number of industries following a weak Quarter 2. This recovery was partially due to manufacture of transport equipment, specifically motor vehicle production, which grew 1.1% in Quarter 3. However, compared with the same quarter a year ago, production of transport equipment fell by 1.0% in Quarter 3 2018. This longer-term weakness in car production in part reflects softer growth in domestic demand, at a time when household real incomes have been squeezed. The weakness in car production is broadly consistent with the latest data from the Society of Motor Manufacturers and Traders (SMMT), which noted a 16.8% fall in UK car manufacturing in September 2018 compared with the same period in 2017. The SMMT attributed the slowdown to a “turbulent first three quarters as global trade tensions, model changes and uncertainty over diesel and Brexit were exacerbated by testing backlogs due to new emissions regulations”.

Meanwhile, output in the energy supply sector rose by 1.4% in Quarter 3, revised down 0.5 percentage points. Energy supply production had been heavily affected by weather conditions in the first half of 2018, with production boosted by the cold weather in Quarter 1 (Jan to Mar), followed by some element of fall back and unusually warm temperatures in Quarter 2.

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5. The expenditure measure of GDP remains unrevised in Quarter 3, although there are revisions to the composition of growth

The expenditure measure of gross domestic product (GDP) increased by 0.6% in Quarter 3 (July to Sept) 2018. Gross capital formation, net trade and household consumption all contributed positively to growth in Quarter 3 2018, while the contribution of government consumption was flat (Figure 6). However, there are some notable revisions to the composition of GDP growth in the latest quarter, specifically notable offsetting revisions to gross capital formation and net trade. This reflects updated estimates of non-monetary gold (NMG) affecting both components, as well as improvements to nominal and real estimates of trade flows and a shift in the alignment adjustment. As earlier analysis showed, the cumulative effect of revisions to net trade since Quarter 1 2017 has led to there being less external rebalancing since voting to leave the European Union than previously estimated.

Private consumption increased by an unrevised 0.5% in Quarter 3 2018, contributing 0.3 percentage points to GDP growth in the latest quarter. One of the main drivers for the increase in Quarter 3 was the increase in spending on miscellaneous goods, particularly other financial services – see Section 7 on revisions for more information. There was a notably sharp drop in household spending on transport, which fell by 1.4%. This mainly reflects a fall in spending on motor cars and is consistent with the weak figures seen in motor trades services output. External evidence has also pointed to a number of demand and supply factors affecting the industry over the last year. The outlook for households appears to be subdued with the latest GfK Consumer Confidence Index falling to its lowest level in almost a year in November, reporting increased concerns over household finances, the general economy and purchase intentions.

There have been revisions to the quarterly path through 2017, in part reflecting the updated 2017 estimates from the Living Costs and Food (LCF) survey. Household consumption growth in 2017 is now estimated to be 2.2%, an upward revision from 1.9%. Figure 7 shows the latest contributions to growth in household consumption in 2017. The upward revision reflects the updates to tourism and miscellaneous goods (specifically life insurance). The revisions to net tourism reflect the incorporation of estimates from the International Passenger Survey (IPS). Household spending includes all expenditure made by households that are resident in the UK, irrespective of where the spending takes place. This means including estimates of UK households abroad and excluding the spending of foreign households in the UK; the difference between these is called net tourism. Incorporating the latest International Passenger Survey (IPS) estimates has revised net tourism upwards.

Household spending includes all expenditure made by households that are resident in the UK, irrespective of where the spending takes place. However, to include all domestic expenditure, it is necessary to add spending by non-residents that happens in the UK and subtract spending by UK residents that happens outside of the UK. The latest IPS estimates show that there was more spending on net tourism in 2017 – that is, foreign residents are estimated to have spent more in the UK in 2017 relative to the amount spent by UK residents abroad.

Whilst there has been an upward revision in 2017, this still reflects a notable slowing from 3.2% growth in the previous year. This in part reflects the impact of the sterling depreciation in squeezing the purchasing power of households, which has been most evident in the slowing in spending on clothing and footwear, communication and miscellaneous goods.

There have been some revisions to the lower-level expenditure estimates, most notably in net trade and gross capital formation. This includes revisions to the latest estimates of non-monetary gold (NMG), which is recorded within the national accounts as a change to valuables and in trade in goods; this can often be quite a volatile series. Movements in NMG do not affect headline GDP as these are recorded as equivalent offsetting impacts, but this is reflected in contributions to GDP growth. This has led to an upward revision in the contribution of gross capital formation (where changes to valuables is recorded) in Quarter 3 2018. Having previously subtracted 0.6 percentage points from GDP growth, the latest estimates now show that there was a positive contribution of 0.2 percentage points. The effect of NMG has been offset in an equivalent downward revision to the net trade contribution.

There have also been improvements incorporated into the trade figures published here, including the incorporation of the annual benchmark of the International Trade in Services survey for 2017 and the replacement of forecast with actual IPS data, which is used to record the exports and imports of travel services. Today’s nominal estimates also include the processing of the latest estimates of financial services. In addition to these nominal changes, there have also been improvements to a number of goods deflators, aimed at capturing more accurately the price movements of exports and imports. This has led to additional revisions feeding through into the volume estimates of exports and imports. Figure 8 shows the revisions to the net trade contributions to GDP growth since Quarter 1 2017. The cumulative effect over this period has been for net trade to have contributed less than previously estimated, most notably in the latest quarter in which net trade is now estimated to have contributed 0.1 percentage points to GDP growth in Quarter 3 2018. This is revised down from 0.8 percentage points and mainly reflects updated estimates of unspecified goods (which contains NMG).

Business investment fell by 1.1% in the latest quarter, revised up by 0.1 percentage points from the first estimate. The latest estimates continue to show that business investment has now fallen for three consecutive quarters, which has not been seen since the global financial crisis (Figure 9). There have also been downward revisions to the quarterly path in 2017, giving a slightly weaker picture of capital expenditure. Business investment is now estimated to have increased by 1.5% in 2017, revised down from 1.8%. Recent research has found evidence that Brexit uncertainty has weighed on the economy so far, reducing the levels of investment and employment since the referendum. The latest findings have shown that almost 40% of businesses consider it as one of the main sources of uncertainty. This figure has risen of late, pointing to the effects of uncertainty still being pronounced. This would also corroborate other survey evidence that points to uncertainty weighing on investment intentions. In a recent CBI survey, 80% of businesses cited Brexit as having a negative impact on investment decisions, a marked increase from the 36% that was reported a year earlier. Intelligence from the Bank of England identifies Brexit uncertainty as the largest headwind to capital expenditure, in line with the most recent Deloitte CFO Survey (PDF 1.27MB).

Today’s estimates show an increase in inventories, although users should be aware that adjustments have been applied to the change in inventories component in Quarter 3 2018 to help balance the different measurement approaches to GDP. The estimates should be considered accordingly. Please see the Quality and methodology section for further information about the balancing adjustments applied to this dataset.

There have been upward revisions to the quarterly path of government investment, with the latest estimates showing that it increased by 3.7% in 2017. This compares with the earlier estimate of 1.7%. Following a notable upward revision in Quarter 1 2018, the last two quarters have been revised down. This is most evident in Quarter 3, in which government investment has been revised down by 3.6 percentage points. Some of this reflects that there has been a reallocation of capital expenditure that relates to the Mersey Gateway Project, with more accurate information now available as to when this activity took place. Information published by the Ministry of Housing, Communities and Local Government (MHCLG) reports £0.6 billion of new construction expenditure reported by the Halton local authority, which relates to the completion and opening of the Mersey Gateway Bridge in 2017. Although the expenditure on the entire project was reported by Halton in their accounts for the financial year ending March 2018, we have taken the decision to record this expenditure on an accruals basis across the construction period, which has led to revisions to the quarterly path. We plan to introduce the remainder of the expenditure in the appropriate years to national accounts and public sector finances simultaneously in Blue Book 2019.

There have also been some revisions to private dwellings investment, which has been revised up in the latest quarter. This reflects the receipt of updated survey data and the incorporation of VAT turnover for 2018 Quarter 2 in construction estimates.

There has been a notable downward revision to government consumption in Quarter 3 2018, which is now estimated to have fallen by 0.3%. This has been driven by updated financial outturn data for healthcare, military and central government public administration. This latest data also includes an improved recording of VAT refunds, which have been taken on in the national accounts to align with the public sector finances. More information on this improvement is available in Section 7.

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6. Nominal GDP revised up in 2017, while new estimates of tax receipts have been incorporated

Nominal gross domestic product (GDP) grew by 1.0% in Quarter 3 (July to Sept) 2018, a downwards revision of 0.1 percentage points. There has been a notable upward revision of 0.3 percentage points to nominal GDP growth in 2017, which is now estimated to have increased by 4.1%.

Quarterly growth in nominal GDP has continued to be driven by growth in compensation of employees (CoE), which increased by 1.4% in Quarter 3 2018. This marks its fastest rise in over a year, reflecting an increase in both wages and salaries and in employers’ social contributions. This is reflected in the latest labour market data, which shows that nominal regular wage growth increased by 3.3% in the year to the three months to October 2018, the fastest rate of growth since late 2008. Gross operating surplus of corporations increased by 0.1% in Quarter 3, revised from the previous estimate of 1.4% – see Section 7 for more information on revisions. Please see the Quality and methodology section for further information about the balancing adjustments applied to this dataset.

There have been upward revisions to the level of taxes on products and production in today’s estimates, which is due to the incorporation of the Apprenticeship Levy, the Immigration Skills Charge and the Soft Drinks Industry Levy. There has also been an improvement in the recording of Value Added Tax (VAT) refunds, which led to revisions to government consumption in the expenditure measure of GDP.

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7. Revisions to GDP

This release includes the processing and gross domestic product (GDP) balancing of a number of annual benchmarks for 2017 including:

  • annual International Trade in Services Survey (calendar year 2017)

  • financial inquiries surveys (calendar year 2017)

  • local government final outturn data for England and for Wales (financial year ending 2018)

The impact of the revised annual estimate does not have to be equally apportioned across the four quarters as statistical consideration has to be given to the pre-existing quarterly path and the impact of seasonal adjustment. These updates will help to improve the quality of our estimates where we are able to replace forecast and short-term estimates with more comprehensive annual survey data.

We have also incorporated Value Added Tax (VAT) turnover data up to Quarter 2 (Apr to June) to estimate the output of small businesses for some industries in the output approach to gross domestic product (GDP). VAT turnover has only been used to estimate growth rates, with the overall level of output still derived from the Annual Business Survey and other annual benchmark sources.

In addition to the annual benchmarks and implementation of VAT turnover, there are also revisions in this release due to the replacement of forecasts with actual survey or external source data and new seasonal adjustment factors.

Revisions to output

VAT turnover estimates for Quarter 2 (Apr to June) 2018 have been included in this release for the first time. These affect the Index of Services, Index of Production and Construction output estimates. Revisions to the monthly path for the short-term indicators will become consistent with this publication on 11 January 2019.

Revisions to the insurance and reinsurance (65.1 to 2); pension funding (65.3); and activities auxiliary to financial services (66) industries are due to the incorporation of annual benchmarks from our financial inquiries surveys.

Detailed revisions to the sectors of output are shown in Table AE.

Revisions to expenditure components

Household final consumption expenditure (HHFCE) revisions are due to a number of factors including updating annual 2017 Living Costs and Food survey (LCF) estimates across a number of Classification of Individual Consumption by Purpose (COICOP) categories. The revision to the miscellaneous category is driven by updated data from financial inquiries surveys for the calendar year 2017, while revisions to net tourism are in part due to the replacement of forecast International Passenger Survey (IPS) estimates from Quarter 2 2017 with actual estimates of the inclusion of updated annual International Trade in Services (ITIS) survey data.

There are a number of reasons for revisions to trade estimates, which are broadly consistent with the UK trade release on 10 December 2018. These include:

  • benchmark data from the annual ITIS survey replacing earlier estimates from the quarterly ITIS surveys, which have a smaller sample size

  • the replacement of previous IPS forecasts in recent periods with actual IPS data; this follows analysis of the data that detected no discontinuities as a result of the change in data collection mode

  • new annual financial inquiries data have revised insurance services

  • improvements to a number of goods deflators, aimed at capturing more accurately the price movements of exports and imports; work to estimate the impact of these improvements has demonstrated these deliver average absolute revisions to export and import chained volume measures of 0.08% for exports and 0.2% for imports

Revisions to government investment are due to the inclusion of capital expenditure outturn data for England in the financial year ending 2018, while dwellings investment revisions include the incorporation of VAT turnover data up to Quarter 2 2018.

Government consumption revisions are due to improvements to the recording of VAT refunds to align with public sector finances estimates. This is an estimate of the amount of VAT claimed back by local authorities and central government departments and it is included in final consumption expenditure to ensure that the sales of services consumed by government are recorded on an equivalent basis, whether they are provided by government or by the private sector. The recording of VAT refunds has been reviewed in collaboration with both HM Revenue and Customs (HMRC) and HM Treasury (HMT) and we have improved the recording of the VAT refunds associated with the National Health Service, academies, the BBC and police commissioners. As such, these updates to VAT refunds have led to revisions to estimates of government consumption.

Detailed revisions to the expenditure components are shown in Table AF.

Revisions to income components

There have been revisions to the gross operating surplus of financial corporations component due to updated annual benchmark figures for 2017 from our financial inquiries surveys.

To ensure alignment of GDP with our public sector finances estimates, a number of new taxes have been included in this release. These include the incorporation of the Apprenticeship Levy, payable by any employer with a pay bill over £3 million each year, and the Immigration Skills Charge, levied on employers of non-European Economic Area (EEA) migrants for a visa to work in the UK from Quarter 2 2017 onwards. Also, the Soft Drinks Industry Levy from Quarter 2 onwards, where producers and importers of added-sugar soft drinks are subject to levy rates depending on sugar content. An improvement in the recording of VAT refunds, an estimate of the amount of VAT claimed back by local authorities and central government departments, has positively contributed to the overall upward revision.

The reclassification of Welsh housing associations has also taken place from the latest quarter. These have been reclassified from public corporations to private non-financial corporations, which impacts upon the estimates of operating surplus for these sectors.

Detailed revisions to the income components are shown in Table AG.

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8. How is the UK economy performing compared with other European and non-European countries?

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.

Three areas included within our international comparisons saw negative growth in Quarter 3 (July to Sept) 2018, with the largest fall of 0.6% seen in Japan following an initial bounce back to 0.7% in Quarter 2 (Apr to June) 2018. Germany saw the second-largest decline of 0.2% compared with Quarter 2 2018, whilst Italy decreased 0.1% over the same period. This narrative differs from Quarter 2 2018, where all areas experienced positive growth. The strongest growth seen in this quarter was 0.9% by the USA.

European Union (EU28) economies grew by an average of 0.3% in Quarter 3 2018. This means that average GDP growth between countries in the area has been positive for 22 consecutive quarters. G7 countries saw an average of 0.4% growth in Quarter 3 2018, though it was slower than the 0.7% experienced in Quarter 2 2018. All G7 countries are above pre-economic downturn peaks except for Italy, whose GDP remains 5.1% below the pre-downturn peak (Quarter 1 (Jan to Mar) 2008).

The areas showing the biggest recoveries over this period are Canada and the USA, who are both up 19.1% since the downturn. UK GDP is now 11.7% above the level recorded in Quarter 1 2008.

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 by Office for National Statistics.

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10. Quality and methodology

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.

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 last 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 datasets 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 been the case for the expenditure approach in Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the expenditure and income components of GDP as 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 size and direction of the quarterly alignment adjustments in Quarter 3 (July to Sept) 2018 indicate that in this quarter the levels of expenditure and income are lower than the level of output.

Table 2 shows the balancing adjustments applied to the GDP estimates in this publication. The quarterly and annual growth rates should be interpreted in the context of these adjustments.

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