GDP quarterly national accounts, UK: October to December 2020

• There is little change to our earlier estimate of UK gross domestic product (GDP) for 2020 as whole, which is now estimated to have contracted by 9.8%, slightly revised from the first estimate of a 9.9% decline; there are, though, revisions to the quarterly path through the year.

• GDP is estimated to have increased by 1.3% in Quarter 4 (Oct to Dec) 2020, an upwards revision of 0.3 percentage points.

• GDP in Quarter 2 (Apr to June 2020) is estimated to have fallen 19.5%, a downwards revision of 0.5 percentage points, and in Quarter 3 (July to Sept) is estimated to have grown by 16.9%, an upwards revision of 0.8 percentage points.

• The household saving ratio increased to 16.1% in Quarter 4 2020, an increase from a revised 14.3% in Quarter 3 2020; over the year 2020, the household saving ratio rose sharply, reaching a record high of 16.3%, compared with 6.8% in 2019.

• Non-financial corporations switched from a net lending position in Quarter 3 to a net borrowing position in Quarter 4; general government saw a decrease in their net borrowing position to 11.0% of GDP compared with 12.9% in Quarter 3.

UK gross domestic product (GDP) is estimated to have increased by 1.3% in Quarter 4 (Oct to Dec) 2020 (Figure 1), revised from the first estimate of 1.0%. The level of GDP in the UK is now 7.3% below its Quarter 4 2019 level, revised from the previous estimate of 7.8%. There have been some revisions to earlier quarters in 2020. GDP in Quarter 2 (Apr to June) 2020 is now estimated to have fallen by 19.5%, while it is now estimated to have increased by 16.9% in the third quarter. However, the annual picture is largely the same. Over the year as a whole, GDP contracted by 9.8% in 2020, slightly revised from the first estimate of a 9.9% decline. This is the largest annual fall in UK GDP on record (Figure 2), while historical figures from the Bank of England’s A millennium of macroeconomic data for the UK point to this being the largest annual contraction since “The Great Frost” of 1709.

In line with the National Accounts Revisions Policy, this dataset is open to revision back to Quarter 1 (Jan to Mar) 2020 as part of this publication. It includes revisions resulting from new survey returns, the incorporation of Value Added Tax (VAT) administrative data up to Quarter 3 (July to Sept) 2020, as well as updates to seasonal adjustment reflecting the latest data. Also in this release we have updated methods relating to the measurement of education in the pandemic. More information can be found in Section 4: Expenditure as well as Section 6: Revisions to GDP.

Nominal GDP increased by 0.8% in Quarter 4 2020, downwardly revised from the previous estimate of 1.6%. This revision is primarily because of updated current price estimates of government spending reflecting revisions to estimates of intermediate health consumption. On an annual basis, the decline in nominal GDP in 2020 remains unrevised at 4.8%, driven by declines in the first half of 2020.

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. The implied deflator fell by 0.5% in Quarter 4 2020, which primarily reflects movements in the implied price change of government consumption which fell by a revised 3.1% – this was revised from the previous estimate of a 1.2% increase because of revisions to final consumption expenditure in health in the fourth quarter. It should be noted that our health volume estimates are based on cost-weighted activity indicators, and therefore were less affected by revisions in the fourth quarter compared with the current price measure of health expenditure. Compared with the same quarter a year ago, the implied GDP deflator grew by 4.9%, revised from the previous estimate of a 6.1% increase.

Other countries have now published estimates of GDP for the final quarter of 2020 (Table 1). These initial estimates show a mixed picture of economic performance for these countries in Quarter 4 2020. For instance, real GDP is estimated to have grown by 2.8% and 2.3% respectively in Japan and Canada, while GDP in Italy and France fell by 1.9% and 1.4% respectively in Quarter 4. The level of real GDP in each of these countries remains below where it was before the effects of the coronavirus (COVID-19) pandemic, ranging from 1.3% to 9.1% (Figure 3). Recent analysis highlights the challenges of making international comparisons of GDP at this time and suggests it may be useful to compare nominal and real estimates of GDP, as well as estimates excluding government expenditure. The shortfall in nominal GDP for these countries ranges from 1.1% to 8.5%.

It is important to note that the extent of these cumulative falls has not been uniform across countries. One reason for this is how we measure non-market output in the UK, where we use direct measures of the volume of activity for health and education. Our initial international engagement has shown that these volume indicators have not been implemented as widely by other National Statistical Institutes (NSIs) in the early estimates of GDP, so there are some challenges around international comparability at this stage. More information on the international comparability of GDP estimates can be found in the recent article International comparisons of GDP during the coronavirus (COVID-19) pandemic.

In Quarter 4 (Oct to Dec) 2020, there have been increases in services, production and construction output, although the output of these industries all remained below pre-pandemic (Quarter 4 2019) levels in Quarter 4 2020 (Figure 4). Services output fell by a slightly upwardly revised 9.0% in 2020, while there was an upwardly revised 8.0% decline in production output and a downwardly revised 14.0% contraction in construction output, reflecting the impact of the coronavirus (COVID-19) pandemic and the restrictions in place over the year in response to it.

Services

Services output increased by 1.0% in Quarter 4 2020 and is now 6.8% below Quarter 4 2019 levels (Figure 5). There were revisions in Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2020, mainly reflecting new Value Added Tax (VAT) data as well as revisions to the education estimates. The increase in Quarter 4 was mainly driven by increases in the health and education industries. The health industry experienced an increase of 11.8%, mainly because of the coronavirus testing and tracing schemes across the UK. Meanwhile, education increased by an upwardly revised 9.2%, reflecting higher levels of school attendance in Quarter 4. However, education output is still below pre-pandemic levels, 8.2% lower than in Quarter 4 2019. There is more information on health and education estimates in Quarter 4 2020 in Section 5: Expenditure, which includes details on adjustments to more fully capture new health services such as testing and tracing.

Other industries that made a positive contribution to the quarterly increase in services output were warehousing and support activities for transportation and postal and courier activities. This was driven by increased online retail activity during this period, in part because of Black Friday and the build-up to Christmas. National restrictions in England in place from the beginning of November forced the closure of non-essential retail stores. In December, these restrictions continued in some regions, so in-store retail activity remained below the previous quarter, as data on retail footfall shows. Therefore, as mentioned by the December BRC Retail sales monitor, much of the growth in retail shopping in December took place online, “where nearly half of all non-food purchases were made”. Although online sales lessened the impact of restrictions during November and December, output in the wholesale and retail trade and repair of motor vehicles sub-industry fell by 1.9% in Quarter 4 2020, after a 30.8% increase in Quarter 3 2020.

Accommodation and food services activities experienced a revised 32.0% fall in Quarter 4 2020, as new restrictions were introduced in November. This followed strong growth in the third quarter because of the combined impact of easing lockdown restrictions and the Eat Out to Help Out Scheme, which boosted consumer demand for bars and restaurants. The Quarter 4 2020 Bank of England Agent's Summary of Business Conditions highlights that “many pubs, cafes and restaurants were able to offer takeaway options”. In November and December, over three-quarters of businesses in this industry experienced a decrease in turnover in comparison with normal expectations for this time of the year, according to results from Wave 18, Wave 19, Wave 20 and Wave 21 of the Business Insights and Conditions Survey (BICS). In relation to a year ago, the output of the accommodation and food services sector is now 49.1% lower.

Production

In Quarter 4 2020, production output increased by 2.0% and is now 3.2% lower than its Quarter 4 2019 level. Manufacturing output is now 2.7% below its pre-pandemic levels (Figure 6). Manufacturing increased by 3.3% in Quarter 4 2020, driven by increases in 11 out of 13 manufacturing sub-industries. The manufacture of transport equipment increased by a revised 11.9%, but it is still 10.5% below the levels in Quarter 4 2019. According to data from the Society of Motor Manufacturers and Traders (SMMT), UK car production in Quarter 4 2020 was 14.5% higher than in the previous quarter. In comparison to Quarter 4 2019, it is however 9.6% lower. This yearly fall was driven by a decline in production for export, with some companies affected by supply disturbances because of border closures, while output for the domestic market grew in comparison to a year ago.

The December 2020 IHS Markit UK Manufacturing PMI (PDF, 172 KB) highlights that the expansion of manufacturing output may partly reflect “clients bringing forward orders to guard against potential disruption caused by the end of the Brexit transition period”. Another driver for the quarterly increase in manufacturing output was the manufacture of chemicals and chemical products, with the coronavirus testing and tracing schemes contributing to the revised 7.3% increase in this sub-industry in Quarter 4 2020. Meanwhile, the manufacture of basic pharmaceutical products continued to fall in Quarter 4 2020, declining by a revised 6.8% after a 2.7% decline in Quarter 3. This is mainly because of the cumulative impact of weakness from large businesses and the often volatile nature of this industry.

Mining and quarrying continued to fall in Quarter 4 2020, by an upwardly revised 3.8%, after an upwardly revised 0.6% fall in Quarter 3, mainly because of reduced global demand. The revised 4.2% decline observed in oil and gas extraction was driven by the introduction of business restrictions affecting on demand.

Construction

Construction output increased by 2.7% in Quarter 4 2020, a downward revision from the first estimate of 4.6%, following an upwardly revised 41.3% increase in the previous quarter. There have been revisions to all quarters in 2020, with larger than normal revisions in Quarter 2 and Quarter 4 2020. The revision in Quarter 2 2020 is a fuller take on of VAT estimates, whereas the revision in Quarter 4 2020 is driven by late survey data.

The construction industry is now 5.9% below its pre-pandemic (Quarter 4 2019) levels. This industry was less affected by the reintroduction of restrictions in Quarter 4, where 80% of businesses continued trading and two-thirds reported unchanged or increased turnover in comparison with what would be normally expected for the time of the year, according to results from Waves 18 to 21 of BICS. Health and safety requirements such as social distancing, however, continued to limit capacity and work levels.

According to the December 2020 IHS Markit UK Construction PMI (PDF, 172 KB), the recovery seen over recent months was “driven by new projects and stronger underlying demand”, particularly in residential building. The latest Bank of England Agent's Summary of Business Conditions reports that output was “mostly supported by infrastructure projects”, while “demand for household repair and maintenance work was strong”.

The expenditure measure of real gross domestic product (GDP) increased by a revised 1.3% in Quarter 4 (Oct to Dec) 2020, following a 16.9% increase in the previous quarter. There was an increase in real government expenditure in Quarter 4, particularly an increase in the volume of healthcare and education. There was an increase in gross fixed capital formation (GFCF) and inventories in the quarter, while household consumption experienced a slight fall in the quarter (Figure 7). The levels of business investment and household consumption remain 7.4% and 9.2% lower than their pre-pandemic (Quarter 4 2019) levels respectively, following upward revisions from the first estimates.

Household consumption

In Quarter 4 2020, household consumption fell by a revised 1.7% (Figure 8), following a bounce back of 19.7% in Quarter 3 (July to Sept) that reflected an easing of public health restrictions. In particular, there was lower spending in restaurants and hotels, which fell by a downwardly revised 18.5% because of the reintroduction of restrictions. These restrictions also affected retail sales, which experienced a 0.4% fall in volume in Quarter 4 2020 according to the latest official retail figures, mainly because of a 4.1% fall in November as a result of enforced closures of non-essential stores in much of the UK. Footfall data on UK high street, retail park and shopping centres show the impact of November restrictions, with UK overall retail footfall falling by around 20 percentage points in this month before recovering to October levels during the first half of December. Meanwhile, household spending on transport decreased by 5.2%. Road traffic data shows a drop in car usage at the beginning of November, when national restrictions started in England, slightly recovering in December.

The GfK consumer confidence index reported a recovery in December 2020, up to negative 26. It is now one point lower than at the end of Quarter 3, with consumers “looking for good news and they have found it in the form of the UK’s COVID-19 vaccination programme”. This index dropped sharply at the beginning of the pandemic, recovering slowly over the third quarter.

Consumption of government goods and services

Government consumption increased by an upwardly revised 6.7% in Quarter 4 2020, after an upwardly revised 15.8% rise in the previous quarter. This has been partly reflected in a volume increase of healthcare services, because of the coronavirus testing and tracing schemes and increases in activity for other healthcare services. Within healthcare, elective surgery and GP services have shown strong recovery, while the volume of activity in other areas such as dental services remains low because patient capacity is reduced when following coronavirus safety protocols.

Nominal government consumption in health increased by a downwardly revised 7.0% in Quarter 4. There have been revisions to this estimate throughout the year, especially in Quarter 4, mainly as a result of improved estimates of expenditure, that is, actual health expenditure was lower than initially forecast.

It should be noted that while government final consumption expenditure in nominal terms includes spending on coronavirus testing and tracing, such activities are not captured within our source data for government final consumption expenditure in volume terms. We have therefore added testing and tracing adjustments to our volume measure of £200 million in Quarter 2 (Apr to June) 2020, £1 billion in Quarter 3 2020 and £4.5 billion in Quarter 4. These adjustments are informed by the available in-year spending data for testing and tracing.

We are aiming to improve our methods to incorporate the activity related to testing and tracing and vaccines; and plan to introduce this in mid-2021, effective from April 2020. Smaller adjustments have been made to the health industry in the output approach to GDP, reflecting evidence that some of this activity is already recorded in private sector manufacturing and services. In Quarter 4 this adjustment was £3.75 billion.

We will be undertaking further work to understand the supply chains involved in delivering testing and tracing activity, as well as the production and distribution of vaccinations, which may lead to some revisions to the industry distribution of these activities. While some vaccinations were given in Quarter 4 2020, activity did not become significant in scale until 2021. We are working on data sources and methods to capture this activity more fully, but we do not expect this to have a significant GDP impact in Quarter 4 2020. There is more information on the latest health estimates in our Measuring healthcare through the pandemic blog.

There have been improvements to how the output and consumption of non-market education services is recorded, which look to improve the consistency in how remote learners are captured over 2020. The consumption of education services increased by a revised 9.9% in Quarter 4, after a revised 41.3% increase in the previous quarter. Attendance improved overall in Quarter 4 but fell back in December. The volume of education consumption is still 11.7% below its level at the end of 2019, partly reflecting reduced attendance. Revisions to Quarter 2 onwards are driven by approach to include remote learning. These new education estimates have the impact of making GDP fall by 0.5 percentage points more than originally estimated in the second quarter of 2020 before recovering by 0.4 percentage points more in the third quarter.

Gross capital formation

In Quarter 4 2020, gross fixed capital formation (GFCF) increased by a revised 4.4%. Business investment increased by an upward revised 5.9% in Quarter 4 2020 and is now 7.4% below where it was at the end of 2019 (Figure 9). According to the Quarter 4 2020 Bank of England Agents’ Summary of Business Conditions, “investment tended to be limited to essential equipment or maintenance, rather than discretionary or strategic projects”, because of “concerns about the strength of the recovery, uncertainty about the outlook, and cash positions”. The latest Bank of England Decision Maker Panel reports that economic uncertainty remained high or very high for 68% of businesses, and “remains much higher than 41% at the start of 2020, while investment remained 20% lower than would otherwise have been because of Covid-19.”

In advance of important dates in the UK’s exit from the European Union during 2019, we saw widespread evidence of businesses stockpiling. As the UK ended its transition period at the end of 2020, there has been further interest in the level of stockpiling.

In the GDP data tables, we see more evidence in these revised estimates that there has been stockpiling taking place. We see a pattern consistent in the imports figures with that seen in advance of the UK’s original planned departure date at the end of March 2019 – particularly including increases in medicinal and pharmaceutical products and cars – albeit less pronounced than in March 2019.

The revised unaligned inventories data now show an increase of £1.5 billion in stocks being held by UK companies in Quarter 4 2020 (Table 3), mainly finished manufacturing goods. This estimate was revised after including new survey data, from a first estimate that showed a decrease in inventories of £1.1 billion. Note alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to GDP – more detail on these can be found in Section 11: Strengths and limitations. Therefore, the unadjusted data can provide a better understanding of the change in the inventory position of businesses the whole economy.

This inventories data, taken together with the imports data, show evidence of stockpiling in preparation for the end of the UK’s transition period with the EU. As suggested by the quarterly stocks survey, some businesses increased their stocks in the lead up to the UK’s departure date from the European Union. The UK Manufacturing PMI (PDF, 172 KB) also reports stockpiling during this period, as clients brought forward orders in order to ”guard against potential disruption caused by the end of the Brexit transition period”.

Net trade

In Quarter 4 2020, the UK posted a trade deficit of 2.4% of nominal GDP (Figure 10). Excluding precious metals, the trade deficit was 1.8% of nominal GDP. The volume trade flows of goods picked up further in Quarter 4, particularly in imports, which increased by a revised 14.3%. The main contributors were machinery and transport equipment, and chemicals, particularly medicinal and pharmaceutical products. Increases in imports of these commodities are consistent with government advice to stockpile medicines ahead of the end of the EU exit transition period as well as an increase in the production of transport equipment in the UK.

First estimates showed a contraction in services trade in Quarter 4, but these revised estimates show there was an increase in services trade for the quarter, 2.6% for exports and 1.3% for imports. The key driver behind revisions to services exports was in education-related services, following the inclusion of the annual benchmark for higher education tuition fees collected from the Higher Education Statistics Agency (HESA). Quarterly estimates have also been revised following the inclusion of updated tourist card spend data. Revisions were also seen in both exports and imports because of the inclusion of late survey returns, especially in other business services.

Nominal gross domestic product (GDP) increased by 0.8% in Quarter 4 (Oct to Dec) 2020, revised from the previous estimate of a 1.6% increase. The level of nominal GDP is now 2.8% below its pre-pandemic (Quarter 4 2019) level (Figure 11).

Compensation of employees (CoE) increased by 2.5% in Quarter 4. The increase was mainly driven by an increase in wages and salaries, which were informed by the latest labour market indicators on pay from HM Revenue and Customs’ (HMRC’s) Pay As You Earn (PAYE) Real Time Information (RTI) data. In Quarter 4 2020, employers’ social contributions increased by 1.9%, revised down from the previous estimate of 3.3% growth because of updated data on national insurance contributions and redundancy payments.

While previous estimates showed a 2.4% fall in taxes, these revised estimates show an increase of 1.5% in Quarter 4. This revision primarily reflects the incorporation of updated Value Added Tax (VAT) data from HMRC. It should be noted that transactions are recorded on an accrual basis within the national accounts. Therefore, while payments may not be completed on a cash basis, for reporting purposes the transaction is registered at the point when it was adjudged to take place. The increase in taxes in Quarter 4 2020 reflects increases in revenues from VAT and Stamp Duty Land Tax (SDLT).

Meanwhile, subsidies fell by 7.3% in the fourth quarter, reflecting a fall in subsidy payments related to the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS) as well as the end of the Government’s Eat Out to Help Out scheme that took place throughout August 2020.

Following an increase of 14.3% in Quarter 3 (July to Sept), gross operating surplus of private non-financial corporations (PNFCs) fell by 4.6% in Quarter 4 2020. However, this mainly reflects the alignment adjustment that is applied to this component for the purpose of balancing the income estimate of GDP for this quarter (Table 4). When the alignment adjustment is removed, PNFC GOS fell by 0.3%. The latest EY UK profit warnings report states that UK profit warnings hit an all-time high in 2020, with UK companies issuing 583 profit warnings over the year. The report highlights the contrast between the first and second half of the year, noting that “COVID-19 dealt a huge blow to earnings expectations in the first half of 2020, triggering record levels of warnings” and adding that “by the second half, expectations adjusted, demand recovered, and profit warnings fell below average – even as COVID-19 restrictions increased in the final quarter”.

In line with the National Accounts Revisions Policy, the dataset is open to revision back to Quarter 1 (Jan to Mar) 2020 as part of this publication.

We have also incorporated Value Added Tax (VAT) turnover data up to Quarter 3 (July to Sept) 2020 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 integration of VAT turnover, there are also revisions in this release because of the replacement of forecasts with actual survey or external source data, and new seasonal adjustment factors. Also in this release we have updated methods relating to the measurement of education in the pandemic. More information can be found in Section 4: Expenditure.

Quarter 1 2020

GDP growth in volume terms is now estimated to have fallen 2.8%, unrevised from the previous estimate.

Quarter 2 2020

GDP growth in volume terms is now estimated to have fallen 19.5%, a downwards revision of 0.5 percentage points from the previous estimate. This is driven by a revision to both output and expenditure measures of GDP because of the change in method for calculating education output, as discussed in Section 4: Expenditure.

Quarter 3 2020

GDP growth in volume terms is now estimated to have increased 16.9%, revised upwards by 0.8 percentage points from the previous estimate.

In the output approach to measuring GDP, which is the lead measure in the latest two quarters, there are upwards revisions to services and construction.

The revision to services is largely a result of the incorporation of VAT turnover data up to Quarter 3 (July to Sept) 2020 as well as upwards revisions to education as per Quarter 2. The revision to construction is the result of the incorporation of VAT turnover data.

Quarter 4 2020

GDP growth in volume terms is now estimated to have increased 1.3%, revised upwards by 0.3 percentage points from the previous estimate.

In the output approach to measuring GDP, which is the lead measure in the latest two quarters, the main driver of the revision is services as a result of a revision to financial services and education data.

In the expenditure approach there are revisions because of updated Trade in services data, as discussed in Section 4: Expenditure.

There is a downwards revision to the GDP implied deflator in Quarter 4 2020. This is being driven by downwards revisions to general government expenditure implied deflator driven by current price changes within government expenditure.

As announced in the article Coronavirus and the effects on UK GDP, the Office for National Statistics (ONS) has temporarily withdrawn the comprehensive Quarterly sector accounts (QSA) statistical bulletin with a brief overview now provided in this bulletin along with the release of a QSA headline bulletin.

The QSA and the associated statistical compendium UK Economic Accounts presents the net lending or borrowing of an institutional sector from both their financial and non-financial accounts as well as a number of important economic indicators, including the household sector’s saving ratio. Definitions of these can be found in the QSA headline bulletin.

Figure 12 shows that in the non-financial account, households have increased their net lending position from 6.7% of GDP in Quarter 3 (July to Sept) 2020 to 7.1% of GDP in Quarter 4 (Oct to Dec) 2020. This increased net lending position has been as a result of a decreased level of household spending (further referenced in households saving ratio) and an increased level of compensation of employees. The increased level of compensation of employees include strong growth in private sectors wages and salaries.

The UK’s borrowing position from the rest of the world increased to 5.0% of GDP in Quarter 4 up from 2.8% in Quarter 3. This was driven by a fall in the goods and services trade balance of £9.3 billion. For further information see the Balance of payments bulletin.

Non-financial corporations saw a switch from net lending of 2.6% of GDP to net borrowing of 1.1% of GDP. Of which private non-financial corporations (PNFCs) saw a switch from net lending of £14.6 billion (2.7% of GDP) in Quarter 3 to net borrowing of £5.3 billion (1.0% of GDP) in Quarter 4. This switch was driven by a £12.7 billion rise in gross capital formation. Within this £9.0 billion of this rise was as a result of changes in inventories, in line with the evidence of stockpiling in preparation for the end of the UK’s transition period with the EU discussed above. Other significant drivers of the switch to a net borrowing position were a £4.7 billion fall in gross operating surplus and a fall in net property income of £2.2 billion.

Financial corporations continued their net borrowing position at 0.9% of GDP in Quarter 4 up from 0.1% in Quarter 3. General government remained a net borrower at 11.0% of GDP in Quarter 4 2020, a decreased net borrowing position from Quarter 3 when it was 12.9% of GDP. Central government received increased taxes on income and wealth of £6.2 billion and a rise in taxes on production and imports less subsidies of £4.9 billion. These were partially offset by a fall in other current transfers of £6.9 billion and a rise in final consumption expenditure of £4.1 billion. The rise in expenditure can in part be attributed to expenditure on health-related items.

Non-profit institutions serving households (NPISH) also continued their net borrowing position at 0.5% of GDP in Quarter 4 2020 compared with 0.4% of GDP in the previous quarter.

In 2020 in the non-financial account, households net lending position was a record high of 8.3% of GDP, increasing to £175.2 billion following net lending of £21.4 billion in 2019. This was mostly driven by a fall in final consumption expenditure of £136.3bn resulting from the impact of the various restrictions on household’s final consumption expenditure (HHFCE) across 2020. The 10% drop in HHFCE was the largest ever recorded and only the second time that a fall in HHFCE (in current prices – before adjustments to remove the impact of inflation) has been seen, with the only other fall taking place in 2009 (which was a contraction of 2.8%).

Also, in 2020, general government experienced a record net borrowing position of 12.4% of GDP. For central government, the increased net borrowing position was as a result of a fall in taxes on production and imports less subsidies of £118.2 billion. This was added to by a rise in final consumption expenditure (FCE) of £48.8 billion driven by pandemic-related expenditure. Local government received large transfers from central government accounting for £29.8 billion resulting in a switch from net borrowing to net lending in 2020. The rise in current transfers to local government was offset by a £14.9 billion rise in subsidies on production and £9.8 billion on FCE, again both linked to the pandemic. Users should be aware that general government data are partially based on official projections, which means figures for recent periods are subject to revision, particularly considering the uncertain impacts of the coronavirus pandemic on the economy.

Non-financial corporations switched from a net borrowing position to a small lending position. Financial corporations and NPISH remained net borrowers and the UK’s borrowing position with the rest of the world was sustained.

Figure 13 shows the households’ saving ratio rose to 16.1% in Quarter 4 compared with 14.3% seen in the previous quarter. The saving ratio remains at a comparatively high level as a result of the large margin between gross disposable household income (GDHI) and HHFCE. With gross savings (the difference between GDHI and FCE) up 109.5% from Quarter 4 of 2019.

GDHI increased by 0.2% from the previous quarter. Despite limited change to the aggregate value of gross disposable income, there were changes in its composition in Quarter 4. Households experienced a 2.6% increase in the level of wages and salaries when compared with Quarter 3. This was partly offset by a rise in taxes on income and wealth of 8.8% compared with Quarter 3 which can partially be attributed to a rise in taxes on self-employment and other.

Household final consumption expenditure decreased by £7.4bn in current prices in Quarter 4, this is a fall of 2.3% from the previous quarter. A decline in expenditure on restaurants and hotels of £4.2bn as restrictions in place to stop the spread of the coronavirus (COVID-19) meant that household’s discretionary consumption was restricted. This was partially offset by increased spending on recreation and culture of £0.8bn, a large contributor was a rise in spending on pets and related products. For more details on changes in consumer spending and its drivers see Consumer trends.

With a widened margin between household expenditure and income, households increased their gross savings by £6.8 billion an increase of 12.8% from Quarter 3. With a higher level of gross savings and a stagnant gross disposable income, the household saving ratio subsequently rose.

The household saving ratio rose sharply in 2020 in response to reduced expenditure, reaching a record high of 16.3% this year, compared with 6.8% in 2019. The previous record of 14.0% was seen in 1992. The record in 2020 was driven by an annual fall in final consumption expenditure of 10.0% from 2019 while GDHI rose by 0.8%. The divergence of income and expenditure resulted in the high saving ratio.

Conversely, real household disposable income only saw a small increase in 2020 of 0.1% as rises in wages and salaries and social benefits were mostly offset by a fall in investment income and mixed income. The 4.7% fall in mixed income was the first decrease in self-employed income since 1997 (which was a contraction of 9.3%).

In the financial account in Quarter 4 2020, households were also net lenders. They continued to increase their level of currency and deposits in line with the rising level of gross savings seen in the non-financial account. However, households reduced their level of other deposits in part owing to the changes in the rate of interest received on National Savings and Investments. Households also continued their net acquisitions of loan liabilities in Quarter 4. The main drivers of this were long term loans secured on dwellings, which saw the highest quarterly issuance since Quarter 4 2007. This could be as a result of the number of house purchase approvals seeing record levels driven by stamp duty reduced rates.

Also, in the latest quarter, non-financial corporations switched to a net borrowing position in the financial account. PNFCs continued to increase their level of currency and deposits, while reducing their net loans position. PNFCs also increased their net liabilities of equities. In the most recent quarter, general government and NPISH remained net borrowers in the financial account. While financial corporations switched from a net lending position to a net borrowing position. The UK’s overall net borrowing position with the rest of the world increased to £38.7 billion in Quarter 4 2020, from £25.0 billion in Quarter 3 2020.

Across the financial account in 2020, general government has increased its net borrowing position by 400.4% from 2019. This has been driven by a fall in net debt securities. Households have increased their net lending position from 2019, as a result of a rise in currency and deposits of £133.5 billion driven by increased savings in line with the household saving ratio discussed above. Non-financial corporations and NPISH remained net borrowers, while Financial corporations switched from a net borrowing position to a small net lending position. Overall, the UK remained in a net borrowing position with the rest of the world.

Quarterly sector accounts annex table

Significant government interventions affecting the non-financial account of the Sector Accounts from Quarter 2 2020:

• Coronavirus Job Retention Scheme (CJRS) was implemented by the government to support employers maintaining their employees on the payroll.
• Self-Employment Income Support Scheme (SEISS) is a grant scheme to support the self-employed with the intention of supporting their business operations and compensating for loss of income.
• Small Business Grant Fund and the Retail, Hospitality and Leisure Grant Fund; two grants intended to help businesses with a fall in sales or increased costs as a result of the coronavirus (COVID-19).

The flow of these interventions through the UK’s institutional sectors is shown in Table 6.

Contribution to growth

Contribution to growth indicates how many percentage points a sector or industry is adding or removing from a given growth rate, usually headline GDP growth.

Gross domestic product (GDP)

A measure of the economic activity produced by a country or region. 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

Index numbers

Data relative to a given base value, which typically refers to a year.

Rolling three-month growth

Rolling three-month growth takes the average level of three consecutive months (for example, April, May and June), and compares it with the average level of the previous three months (for example, January, February, and March). The rolling three-month growth rate is often used alongside the monthly growth rate, as the latter can be more volatile.

For further definitions, please see the Glossary of economic terms.

The UK National Accounts are drawn together using data from many different sources. This ensures that they are comprehensive and provide different perspectives on the economy; for example, sales by retailers and purchases by households. Further information on all three approaches to measuring gross domestic product (GDP) can be found in the Guide to the UK National Accounts and more quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Gross domestic product (GDP) QMI.

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

In line with the National Accounts Revisions Policy, revisions are open back to Quarter 1 (Jan to Mar) 2020 as part of this publication. Further information on these revisions is available in Section 6: Revisions to GDP.

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 take the lead because of the larger data content.

In usual practice, for the periods prior to the latest two quarters, we align each of the approaches growth rates within a target of plus or minus 0.2 percentage points of the output growth within each quarter. With the large volatile movements in the GDP growth rates in 2020, we have taken the opportunity to review this to adopt a more flexible target of the larger of plus or minus 0.2 percentage points, or 10% bound around the growth of output within each quarter. This helps to reflect the changing nature of the economy, as implemented at the first quarterly estimate Quarter 4 (Oct to Dec) 2020.

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 GDP quarterly national accounts data tables in this release, have a target limit of plus or minus £3,000 million on any quarter. This is revised from the previous £2,000 million target as implemented at the first quarterly estimate. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed.

As a result of the increased challenges and uncertainty in balancing GDP growth in 2019, expenditure and income alignment adjustments for the quarters of 2019 do not sum to zero over the year. While this alignment adjustment adds to both expenditure and income GDP in 2019, it does not change the annual 2019 rate of GDP growth to 1 decimal place. For a list of series affected please refer to the Notice page in GDP quarterly national accounts data tables.

We will look to reconcile these differences in Blue Book 2021 in line with the National Accounts Revision policy.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where required (Table 5). They are applied to the individual components where data content is particularly weak in a given quarter because of a higher level of forecast content.

GDP monthly estimates

On 12 March 2021, estimates of monthly GDP were published for January 2021. The Index of Services, Index of Production and Construction output in Great Britain publications covering January 2020 are also available.

This release sees revisions to Quarter 1 (Jan to Mar) 2020 to Quarter 4 2020. Although this release focuses on providing the best quarterly estimate of GDP, an indicative monthly path for the Quarter 1 2020 to Quarter 4 is provided in Table 7. A full breakdown of the monthly data consistent with this release will be available in the next monthly GDP release (on 13 April 2020).

Impact of the coronavirus (COVID-19)

This release captures the direct effects of the coronavirus (COVID-19) pandemic and the government measures taken to reduce transmission of the virus. We have faced an increased number of challenges in producing quarterly estimates of UK GDP for Quarter 4 2020. More detailed information on the challenges and the steps taken to mitigate those can be found in Coronavirus and the effects on UK GDP.

As a result of these challenges, GDP estimates for Quarter 4 2020 are subject to more uncertainty than usual and are likely to have larger than usual revisions in subsequent releases.

Additionally, as a result of the unprecedented impacts and interventions in the economy, we have particular uncertainty around the income approach to measuring GDP in this release. For more information see Section 5: Income.

Figure 14, Figure 15 and Figure 16 highlight a general decline in response rates for surveys that feed into the GDP quarterly national accounts for Quarter 4 2020. We have undertaken a significant amount of work to ensure that the effect on the quality of our estimates is mitigated as much as possible. This includes focusing resources on main respondents and industries, methodology reviews including but not limited to seasonal adjustment, forecast and imputation, and the use of additional sources of data (in quality assurance). More information on the measures taken can be found in Section 6 of Coronavirus and the effects on UK GDP.

More information on Monthly Business Survey (production) response rates by industry is available.

End of EU exit transition period

As the UK enters into a new Trade and Co-operation Agreement with the EU, the UK statistical system will continue to produce and publish our wide range of economic and social statistics and analysis. We are committed to continued alignment with the highest international statistical standards, enabling comparability both over time and internationally, and ensuring the general public, statistical users and decision makers have the data they need to be informed.

Additionally, the Withdrawal Agreement outlines a need for UK gross national income (a fundamental component of the national accounts, which includes GDP) statistics to remain in line with those of other EU countries until EU budget contributions are finalised for the years in which we were a member, and making budget contributions during the transition period. To ensure this comparability during this period, the national accounts will continue to be produced according to European System of Accounts (ESA) 2010 definitions and standards until at least 2024.

As the shape of the UK’s future statistical relationship with the EU becomes clearer over the coming period, the Office for National Statistics (ONS) is making preparations to assume responsibilities that as part of our membership of the EU, and during the transition period, were delegated to the statistical office of the EU, Eurostat. This includes responsibilities relating to international comparability of economic statistics, deciding what international statistical guidance to apply in the UK context and to provide further scrutiny of our statistics and sector classification decisions.

In applying international statistical standards and best practice to UK economic statistics, we will draw on the technical advice of experts in the UK and internationally, and our work will be underpinned by the UK’s well-established and robust framework for independent official statistics, set out in the Statistics and Registration Service Act 2007. Further information on our proposals will be made available later this year.

International comparability

GDP estimates for Quarter 4 2020 are subject to more uncertainty than usual as a result of the challenges we faced estimating GDP in the current conditions. Differences in the methods for estimating the output of health and education services across different countries mean GDP may be less internationally comparable during the coronavirus (COVID-19) pandemic and recovery than usual, so should be made with increased caution. For more information, please refer to our recently published blog.

Quarterly Stocks Survey temporary expansion

The Quarterly Stocks Survey (formerly Inquiry) is used in the compilation of the changes in inventories component. To address users’ concerns about the sample size of the survey and the potential impact on quality, we temporarily increased the sample size from 5,500 to 9,500 businesses for Quarter 3 (Apr to June) 2020. We have continued to boost the sample in subsequent quarters and will continue to do so until further notice.

Quality and methodology

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Gross domestic product (GDP) QMI.

The UK National Accounts are drawn together using data from many different sources. This ensures that they are comprehensive and provide different perspectives on the economy; for example, sales by retailers and purchases by households.

Important quality information

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 Gross domestic product (GDP) QMI analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.