UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.2% in Quarter 4 (Oct to Dec) 2018, unrevised from the previous estimate.
There has been an upward revision of 0.1 percentage points to GDP growth in Quarter 3 (July to Sept) 2018 to 0.7%, due to revisions to estimates of government services; the first two quarters of 2018 remain unrevised in the latest quarter.
Growth in the latest quarter was driven by the services sector, while all four sub-sectors of production and construction contributed negatively to GDP growth.
Private consumption and government consumption contributed positively, while gross capital formation and net trade contributed negatively to GDP growth in the latest quarter.
There have been some upward revisions to business investment in Quarter 3 and Quarter 4 2018 because of later survey returns, but business investment still fell in every quarter of 2018.
Nominal GDP increased by 0.7% in Quarter 4 2018 with compensation of employees providing the largest contribution to growth.
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 (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.Nôl i'r tabl cynnwys
UK gross domestic product (GDP) is estimated to have slowed to 0.2% in Quarter 4 (Oct to Dec) 2018, unrevised from the first estimate of GDP, following comparatively strong growth in Quarter 3 (July to Sept) 2018. Growth in Quarter 3 2018 has been revised up slightly to 0.7%, where some of this activity is likely to have reflected one-off effects of the warm weather and the World Cup. In comparison with the same quarter a year ago, UK GDP increased by a revised 1.4%, continuing the relatively subdued performance of late (Figure 1).
In line with the National Accounts Revisions Policy, the dataset is open to revisions back to Quarter 1 (Jan to Mar) 2018. The latest estimates include revisions due to new survey returns, the incorporation of Value Added Tax (VAT) administrative data up to Quarter 3 2018 as well as updated seasonal factors reflecting the latest data. The only revision to quarterly real GDP growth is in Quarter 3 2018, which has been revised up slightly to 0.7%.
The latest estimates show that UK GDP increased by an unrevised 1.4% in 2018, compared with 1.8% in 2017. UK GDP last increased by 1.4% in 2012 and has not been weaker since 2009.
There are also signs that global momentum has weakened recently. Figure 2 shows how the UK economy has performed compared with other G7 countries in the last few years. In 2017, the UK was the only advanced economy not to experience a pick-up in the rate of growth, as the global economy recorded its strongest uptick in activity since 2011. As such, the UK was only the sixth-fastest growing G7 economy that year, slipping down these international rankings. This loss in momentum became more global in 2018 with the majority of G7 countries – except the United States – experiencing a slowdown in the rate of growth.
That said, the latest estimates show that the UK was only the fifth-fastest growing advanced economy in 2018, ahead of Japan and Italy – the latter entering a technical recession in the second half of the year. The latest Interim Economic Outlook (PDF, 532KB) produced by the Organisation for Economic Co-operation and Development (OECD) attributes the global slowdown to “high policy uncertainty, ongoing trade tensions and a further erosion of business and consumer confidence”. This chimes with the latest World Economic Outlook produced by the International Monetary Fund (IMF), which highlights trade tensions and financial market sentiment as risks to the outlook.
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 4 2018, the implied GDP deflator increased by a revised 1.8%, up from the previous estimate of 1.6%. Revisions to exports prices in particular have meant that there have been upward revisions in the implied GDP deflator in all quarters of 2018. The upward revisions to trade prices have occurred due to a variety of factors, and data are consistent with the latest UK Trade release. Overall in 2018, the implied GDP deflator eased to 1.9%, revised up from the previous estimate of 1.7%. Nominal GDP growth slowed from 4.1% in 2017 to a slightly revised 3.3% in 2018, reflecting a slowing in real GDP growth and lower price inflation.Nôl i'r tabl cynnwys
The output measure of gross domestic product (GDP) increased by an unrevised 0.2% in Quarter 4 (Oct to Dec) 2018, as the latest estimates reaffirm that there was a slowing in activity in the final quarter of 2018, compared with the previous quarter.
Services output increased by 0.5% in Quarter 4 2018, revised up from 0.4%. However, annual growth for 2018 remains unchanged at 1.7% – the weakest it has been since 2011.
Production output declined by 0.8% in the final three months of the year, with a fall in output recorded across all four main areas of production.
There have been some small revisions to the quarterly path of construction output through 2018. The overall impact shows a weaker picture in 2018, with construction output now estimated to have slowed to 0.3%.
That said, Figure 3 shows that the narrative for 2018 remains largely unchanged – the most notable development is the upward revision to GDP growth in the third quarter, principally reflecting revisions to government and other services.
Growth in services output has been relatively stable over 2018. It has been revised up slightly in the second half of 2018, with the latest estimate showing an increase of 0.5% in Quarter 4, slowing from the previous quarter (Figure 4). This easing was evident in the December 2018 UK Services Purchasing Managers Index (PDF, 158KB), which noted that survey respondents commented that “Brexit-related concerns were a key factor weighing on business-to-business spending at the end of 2018”, as business activity rose at one of its slowest rates over the previous two and a half years.
Business and finance services increased by 0.4% in the fourth quarter, driven primarily by growth in professional services. This is weaker than our previous estimate of 0.6% in Quarter 4 2018. The latest Bank of England Agents’ Summary of Business Conditions (PDF, 1.4MB) reports that demand for business and financial services continued to grow at a “modest pace”.
There have also been upward revisions to government and other services, specifically relating to estimates of health output. These volume estimates are based on a measure of output activity in the NHS, such as inpatient and outpatient attendances, where we have received updated estimates of such activity. There have also been revisions to transport, storage and communications throughout 2018, which reflect updated survey and administrative information.
In the production industries, output is now estimated to have fallen by 0.8% in Quarter 4 2018. This has been revised up from the 1.1% fall in the previous estimate, although it still shows that there have been declines across all four main areas of production (Figure 5). This is the first time all four main components have fallen since Quarter 1 2009.
There has been a weak picture in manufacturing throughout 2018 with falls in three of its four quarters. In particular, manufacturing output of transport equipment fell during 2018. This is also echoed in the recent Society of Motor Manufacturers and Traders survey, which reports that UK car production fell 18.2% in the year to January 2019, reflecting a decline in domestic and foreign demand. Manufacturing output fell by a revised 0.7% in Quarter 4 2018, with 9 out of the 13 manufacturing sectors experiencing a contraction in activity.
There have also been revisions to mining and quarrying output as well as smaller revisions to electric, gas, steam and air production output throughout 2018. The upward revisions to oil production throughout the year reflects under-reporting of new oil fields from the Department for Business, Energy and Industrial Strategy (BEIS) in previous estimates. Water supply and sewerage output fell by 0.9% in Quarter 4 2018, a downward revision of 0.5 percentage points. Upward revisions have been made to water supply and sewerage in all other quarters in 2018, reflecting the incorporation of VAT turnover data and new monthly business survey data.
Some revisions have been made to the quarterly path of construction output in 2018, which paint a slightly weaker picture for the year. Construction output fell 1.5% in the first quarter of the year, weaker than the initial estimated fall of 1.2%, when activity was likely to have been affected by adverse weather. Following two consecutive quarters of growth, output of the construction industry fell by 0.5% in Quarter 4 2018. The latest Bank of England Agents’ Summary of Business Conditions (PDF, 1.4MB) highlights that activity in the construction industry remains modest, while the UK Construction Purchasing Managers’ Index slowed in December 2018, with signs of heightened uncertainty weighing on new orders.Nôl i'r tabl cynnwys
The expenditure measure of gross domestic product (GDP) increased by 0.2% in Quarter 4 (Oct to Dec) 2018. Private and government consumption contributed positively to GDP growth, partially offset by the negative contributions of gross capital formation and net trade.
Figure 6 shows how the economy has evolved in recent years, with 2018 largely unrevised from previous estimates. There has been a notable slowdown in the contribution of private consumption in the last couple of years. This in part reflects the effect of a squeeze in purchasing power from higher import inflation following the fall in the exchange rate after the EU referendum. It also shows the positive contribution of gross capital formation in 2018, although gross fixed capital formation was broadly flat in 2018, which reflects a marked slowing from previous years. Having provided a boost to GDP growth in 2017, net trade fell in 2018 – a possible reflection of the waning effects of sterling’s depreciation and a slowing momentum in the global economy.
Household consumption increased by 1.8% in 2018, slowing markedly over the last couple of years. This easing in consumer spending primarily reflects a slowing in how much households have spent on recreation and culture, and transport (Figure 7), though it should be noted that spending on recreation and culture in 2016 was at its highest point since 2009.
In Quarter 4 2018, household consumption slowed slightly to 0.3%. Spending on housing and household goods and services were the main drivers in the latest quarter. The latest GfK Consumer Confidence figures highlight that confidence continues to be somewhat subdued, as views on the general economy over the past 12 months and the economic outlook for the year ahead continue to weigh heavily on consumer confidence.
Government consumption increased by 1.3% in the final three months of 2018, with a significant contribution from increased defence spending. Expenditure in these areas has been lower across this financial year compared with previous years. However, the latest estimates show that there has been a pick-up in such spend.
Business investment has now fallen for four consecutive quarters – the first such instance since 2009 –driven mainly by declines in transport equipment as well as IT equipment and other machinery. The latest estimates show that there have been some upward revisions in the second half of 2018, with business investment now estimated to have fallen by 0.9% in Quarter 4.
These revisions to the quarterly path have resulted in an upward revision to the annual figure with business investment falling 0.4% in 2018. The Bank of England Inflation Report (PDF, 4.2MB) states that this weakness appears to “primarily reflect Brexit and associated uncertainty”, also echoed in the Quarter 4 Decision Makers’ Panel, which highlights EU exit as one of the top sources of uncertainty. The latest Deloitte CFO Survey (PDF, 899KB) reports that perceptions of economic and financial uncertainty continued to rise in the final quarter of 2018 while the outlook for capital expenditure has deteriorated. Recent analysis (PDF, 609KB) finds that “almost 70% of the slowdown” in business investment could be accounted for by EU exit. The Decision Makers’ Panel latest findings that the proportion of businesses for which EU exit was considered one of the main sources of uncertainty increased further in the three months to January 2019.
Figure 8 provides some historical context for the recent weakness in business investment, showing its path following each of the last three UK recessions. In contrast to previous episodes, it appears that businesses have held back on capital spending at a point in the cycle where previous historical episodes would point to a pick-up.
Government investment increased by 0.5% in Quarter 4 2018, revised down due to updates from central government. There were also revisions to the quarterly path in 2018, partly reflecting revisions from local government due to updated data for Crossrail. Overall, this has led to an upward revision in general government investment growth figure of 1.5% in 2018.
Alignment adjustments and balancing adjustments are typically applied to the inventories component to help balance the different approaches to GDP. The adjustments to inventories in Quarter 4 2018 were larger than usual, reflecting weakness in the expenditure approach to measuring GDP – more information on these can be found in the Quality and Methodology section.
There was a £4.2 billion increase in inventories in Quarter 4 2018, including alignment adjustments and balancing adjustments. However, excluding these adjustments the estimates show a slight decrease of £1.2 billion in stocks being held by UK companies. This is in contrast to a range of business surveys, which have recently reported a marked increase in building up inventories in preparation for any potential disruptions to supply chains. For instance, the latest Agents’ Update on Business Conditions (PDF, 4.2MB) finds evidence that UK businesses are stockpiling in preparing for EU exit. Around half of those businesses that were preparing for EU exit were reported to be building up their stocks of inventories, while some were taking additional warehouse space.
There have also been 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. 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. There was a sizeable export of NMG in Quarter 4 2018, reflected in an offsetting fall in the acquisition less disposal of valuables component, which helps explain the size of the contribution of gross capital formation. Despite this NMG movement, net trade made a negative contribution to GDP growth in the last three months of 2018.
There have been notable revisions to the volume estimates of export and import flows through 2018, which in part reflect revisions to the International Passenger Survey (IPS) estimates on personal travel, though these are consistent with the latest UK trade release.
The estimates in the first quarter of the year have been revised down, although there have been offsetting revisions throughout the rest of the year. This is reflected in the latest net trade contributions (Figure 9). The overall impact is that the narrative on external rebalancing is largely unrevised for 2018. In its latest Economic and Fiscal Outlook (PDF, 3.7MB), the Office for Budget Responsibility cite the softening in world trade growth. There has also been a downward revision to its outlook for UK export market growth, as the weaker world trade picture has been concentrated in advanced economies, which comprise a higher share of UK exports.
Nôl i'r tabl cynnwys
Nominal gross domestic product (GDP) grew by 0.7% in Quarter 4 (Oct to Dec) 2018, revised up from 0.6% in the first quarterly estimate. There have been some revisions throughout 2018, which have resulted in an upward revision to nominal GDP growth in 2018. The latest estimates now show that nominal GDP increased by 3.3% in 2018 – revised up slightly from 3.2% in the first quarterly estimate – still reflecting a slowing from the previous year. Figure 10 shows the contributions of income components to nominal GDP.
Growth in compensation of employees (CoE) slowed to 0.8% in Quarter 4 2018. This reflects a slowdown in the growth of wages and salaries compared with the previous quarter and a fall in employers’ contributions to private pensions schemes following increases in employers’ social contributions in the previous two quarters.
Gross operating surplus (GOS) has been revised in 2018 with the latest estimates showing a slowdown to 0.1% – a weaker picture for the year. There have been revisions to the quarterly path throughout 2018 reflecting improved data on financial services and updated survey estimates, with today’s (29 March 2019) estimates showing an increase of 0.4% in Quarter 4. This is a marked upward revision from the previous estimate of a 0.8% fall. Other income increased by 1.4% in Quarter 4, in line with the quarterly profile of 2018.
Nôl i'r tabl cynnwys
Compensation of Employees (CoE) breakdown
We have decided to add a breakdown of CoE into the GDP first quarterly estimate and GDP quarterly national accounts datasets. This will provide users with estimates of the two components of CoE; wages and salaries, and employers’ social contributions. We will incorporate these additional series in Table D from the May 2019 publication.
Contributions summary of records
Currently we publish a summary of records allowing quick comparison of the most recently published growth rates with historic data. From May 2019 we plan to publish an additional dataset providing a summary of records for contributions to GDP growth.
Gross value added (GVA) at factor cost
Within the UK Economic Accounts (UKEA) we publish four series presenting GVA at factor cost (identifiers KGN7, KGN6, KGN5 and YBHH). We are considering withdrawing these series from publication because GVA at factor cost is not recognised within the UN System of National Accounts 2008 (SNA08) framework, therefore we have concerns over the methodology used to calculate these estimates. We propose removing these series from the UKEA publication from September 2019 and ahead of this we welcome user feedback around the use of these series.
International Financial Reporting Standards (IFRS)
As of 1 January 2019 a new reporting standard has taken effect for those businesses using accountancy framework IFRS. IFRS 16 Leases brings the reporting of operating leases onto balance sheets. This is expected to impact how businesses report on their fixed assets mainly via our Quarterly Acquisition and Disposal of Capital Assets Survey (QCAS), used in the compilation of gross fixed capital formation and business investment.
This change is contrary to how we treat operating leases within the national accounts so to prepare we are gathering data already freely available and speaking to survey respondents and international businesses to assess the potential impact of IFRS 16’s introduction. This will help us make a decision on how we treat any potential change in the levels of gross fixed capital formation in our Quarter 1 2019 dataset to ensure that there is no impact on the UK National Accounts as a whole.Nôl i'r tabl cynnwys
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. The size and direction of the quarterly alignment adjustments, when considered alongside the statistical discrepancy, in Quarter 4 2018 indicate that in this quarter the levels of expenditure and income are lower than the level of output.
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 4 2018. 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 1, the resulting series should be considered accordingly.
|GDP measurement approach and component adjustment applied to||Q1 2018||Q2 2018||Q3 2018||Q4 2018|
|Trade in Services||Current prices||-300||-500||-500||100|
|Chained volume measure||300||500||750|
|Change in inventories||Current prices and Chained volume measure||3000|
|Household final consumption expenditure||Current prices and Chained volume measure||200|
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- Quarterly economic commentary : October to December 2018
- Balance of payments, UK : October to December 2018
- Business investment in the UK : analysis by asset
- Business investment in the UK : October to December 2018 revised results
- Business investment in the UK : October to December 2018 revised results
- Quarterly sector accounts, UK : October to December 2018
- Consumer trends, UK : October to December 2018