Second estimate of GDP: Quarter 3 (July to Sept) 2016

UK GDP in volume terms was estimated to have increased by 0.5% between Quarter 2 (Apr to June) 2016 and Quarter 3 (July to Sept) 2016, unrevised from the preliminary estimate of gross domestic product published on 27 October 2016. This is the 15th consecutive quarter of positive growth since Quarter 1 (Jan to Mar) 2013.

The reporting period for this release covers Quarter 3 2016, and therefore includes data for the whole period after the EU referendum. Since the result, growth in gross domestic product (GDP) has been in line with recent trends. This suggests limited effect so far from the referendum.

Between Quarter 3 2015 and Quarter 3 2016, GDP in volume terms increased by 2.3%, unrevised from the previously published estimate.

GDP in current prices increased by 0.8% between Quarter 2 2016 and Quarter 3 2016.

GDP per head in volume terms was estimated to have increased by 0.3% between Quarter 2 2016 and Quarter 3 2016.

From January 2017, we are improving the way we publish economic statistics, with related data grouped together under new "theme" days. This will increase the coherence of our data releases and involve minor changes to the timing of certain publications. For more information see Changes to publication schedule for economic statistics.

Gross domestic product (GDP) growth is the main indicator of economic performance. There are 3 approaches used to measure GDP.

Gross value added (GVA) is the sum of goods and services produced within the economy less the value of goods and services used up in the production process (intermediate consumption). The output approach measures GVA at a detailed industry level before aggregating to produce an estimate for the whole economy. GDP (as measured by the output approach) can then be calculated by adding taxes and subtracting subsidies (both only available at whole economy level) to this estimate of total GVA (more information on creating the preliminary estimate of GDP is available on our Methods and sources page).

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

The expenditure approach is the sum of all final expenditures within the economy, that is, all expenditure on goods and services that are not used up or transformed in the production process, that is, final consumption (not intermediate) for the whole economy.

The third estimate of GDP is based on revised output data, together with updated data from expenditure and income components. In the quarterly national accounts, the output GVA and GDP estimates are balanced with the equivalent income and expenditure approaches to produce headline estimates of GVA and GDP. Further information on all 3 approaches to measuring GDP can be found in the Short Guide to National Accounts.

All data in this bulletin are seasonally adjusted estimates and 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. For further information regarding non-seasonally adjusted data, please refer to the UK Economic Accounts (UKEA). It can be downloaded directly from the UKEA dataset and on the UKEA main aggregates reference table.

Growth for GDP and its components is given between different periods. Latest year-on-previous-year gives the annual growth between a calendar year and the previous. Latest quarter-on-previous-quarter growth gives growth between a quarter and the quarter immediately before it. Latest quarter-on-corresponding-quarter-of-previous-year shows the growth between a quarter and the same quarter a year ago.

In line with National Accounts Revisions Policy, the earliest period open for revision in this release is Quarter 3 (July to Sept) 2016.

The second estimate of GDP is produced around 7 and a half weeks after the end of the quarter to provide a timely estimate of GDP. At this stage the data content of this estimate from the output measure of GDP has risen to around 80% of the total required for the final output based estimate. There is also around 50 to 60% data content available to produce estimates of GDP from the expenditure and income approaches.

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. One source of information is from business surveys which use information provided directly from UK businesses. These data are subject to many layers of vigorous quality assurance by highly trained personnel, from clarity and confirmation of individual unit data direct from the business contact to scrutiny of data at the macro level. Other sources of data include other government departments and administrative data, including Value Added Tax (VAT) data from HM Revenue and Customs (HMRC) which are subject to quality checks and challenges from the Office for National Statistics (ONS). By comparing and contrasting these different sources, the national accounts produce a single picture of the economy which is consistent, coherent and fully integrated.

The production and publication of each gross domestic product (GDP) release is managed by a highly skilled team with a strong emphasis on statistical, analytical and economic debate throughout the production process to publish the headline GDP estimate and components. Although a limited audience have access to GDP data ahead of publication, those involved in the process are selected to ensure each GDP balance achieves a rigorous statistical and economic challenge. A “balancing meeting” is held during each production round, where presentations assess GDP and its components against a swathe of external indicators and a focus on GDP headline components. This is attended by senior managers within ONS who challenge the data to ensure consistency and plausibility of the GDP balance. We recognise the importance of transparency and have recently introduced an additional section in our background notes where the balancing adjustments applied – size and the components targeted – are now published.

Accompanying each quarterly and annual production cycle, external quality assurers with particular areas of expertise are invited to challenge and report on the statistical and economic coherence of the headline national account and component dataset. Current assessors include HM Treasury, Bank of England, National Institute of Economic and Social Research, HM Revenue and Customs and Tax Administration Research Centre. Drawing on their personal experience, expertise and subject knowledge, the external quality assurers work in a personal capacity to challenge the synergy of the dataset from a full range of views – those of producers, data compilers and users of the statistics – before final sign-off.

Unlike many short-term indicators that we publish, there is no simple way of measuring the accuracy of GDP. All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics we measure and publish the sampling error and non-sampling error associated with the estimate, using this as an indicator of accuracy. Since sampling is typically done to determine the characteristics of a whole population, the difference between the sample and population values is considered a sampling error. Non-sampling errors are a result of deviations from the true value that are not a function of the sample chosen, including various systematic errors and any other errors that are not due to sampling. The estimate of GDP, however, is currently constructed from a wide variety of data sources, some of which are not based on random samples or do not have published sampling and non-sampling errors available. As such it is very difficult to measure both error aspects and their impact on GDP. While development work continues in this area, like all other G7 national statistical institutes, we don't publish a measure of the sampling error or non-sampling error associated with GDP.

One dimension of measuring accuracy is reliability, which is measured using evidence from analyses of revisions to assess the closeness of early estimates to subsequently estimated values. Many users try to minimise the impact of uncertainty by using the historical experience of revisions as a basis for estimating how confident they are in early releases and predicting how far and in what direction the early release might be revised. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The estimate is subject to revisions as more data become available, but between the preliminary and third estimates of GDP, revisions are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal. Many different approaches can be used to summarise revisions; the Validation and Quality Assurance section in the Quality and Methodology Information paper analyse the mean average revision and the mean absolute revision for GDP estimates over data publication iterations. In addition to this analysis, Section 14 of the revisions to GDP and components in Blue Books 2014 and 2015 article updates the metrics used to test revisions performance in order to answer the question “Is GDP biased?”.

Historical context

As seen in Figure 1, gross domestic product (GDP) in the UK grew steadily during the 2000s until a financial market shock affected UK and global economic growth in 2008 and 2009. From the peak in Quarter 1 (Jan to Mar) 2008 to the trough in Quarter 2 (Apr to June) 2009, GDP decreased by 6.3%.

This can be compared with previous economic downturns in the early 1980s and early 1990s, which saw lower levels of impact on GDP. In the early 1990s downturn, GDP decreased 2.0% from the peak in Quarter 2 1990 to the trough in Quarter 3 (July to Sept) 1991. In the early 1980s downturn, GDP decreased by 5.4% from the peak in Quarter 2 1979 to the trough in Quarter 1 1981.

From Quarter 3 2009, growth continued to be erratic, with several quarters between 2010 and 2012 recording broadly flat or declining GDP growth. This period coincided with special events (for example severe winter weather in Quarter 4 (Oct to Dec) 2010 and the Diamond Jubilee in Quarter 2 2012) that are likely to have affected growth both adversely and positively. Since 2013, GDP has grown steadily, with the economy exceeding pre-downturn peak levels in Quarter 3 2013.

GDP growth in Quarter 3 2016 decreased slightly to 0.5% from 0.7% in the previous quarter. Following a slowdown in GDP growth at the start of 2015, output has grown steadily in recent quarters, and was 2.3% higher in Quarter 3 2016 than in the same period a year earlier. GDP is now 8.1% above its pre-downturn peak and the growth in Quarter 3 2016 is the 15th consecutive quarter of expansion since the beginning of 2013.

Out of the 4 main output industrial groupings within gross domestic product, only 1 showed an increase in Quarter 3 (July to Sept) 2016 compared with Quarter 2 (Apr to June) 2016: the services sector. Meanwhile, agriculture, forestry and fishing, construction, and production showed decreases in this period. Within production, 3 of the 4 components decreased, which resulted in overall negative growth in total production. All of the 4 components within the services industries showed an increase between Quarter 2 2016 and Quarter 3 2016.

Production output decreased by 0.5% in Quarter 3 2016 compared with Quarter 2 2016, revised down 0.1 percentage points from the previously published estimate. Within the production sub-industries, output from mining and quarrying (including oil and gas extraction) increased by 4.3%; manufacturing (the largest component of production) decreased by 0.9% (Figure 2) and electricity, gas, steam and air conditioning supply industries decreased by 4.3%. Water supply and sewerage decreased by 0.5%.

When comparing Quarter 3 2016 with Quarter 3 2015, production output increased by 1.0%, revised down 0.2 percentage points from the previously published estimate. Mining and quarrying, including oil and gas extraction, increased by 3.5%; water supply and sewerage increased by 4.9%; manufacturing increased by 0.5% between these periods, while the electricity, gas, steam and air conditioning supply industries decreased by 1.4%.

Construction output decreased by 1.1% in Quarter 3 2016, revised up 0.3 percentage points compared with Quarter 2 2016. Construction output increased by 0.1% between Quarter 3 2015 and Quarter 3 2016, revised up 0.3 percentage points from the previously published estimate.

The service industries increased by 0.8% in Quarter 3 2016 (Figure 3), compared with the previous quarter, unrevised from the previous estimate, marking the 15th consecutive quarter of positive growth. This follows a 0.6% increase in Quarter 2 2016.

Output of the distribution, hotels and catering industries increased by 1.1% in Quarter 3 2016, the same increase as in Quarter 2 2016. The largest contributor to the increase was retail trade except of motor vehicles and motor cycles.

Output of the transport, storage and communication industries increased by 2.3% in Quarter 3 2016, this compares with an increase of 0.6% in Quarter 2 2016. The largest contributor to the increase was motion picture, video and TV programme production.

Output of the business services and finance industries increased by 0.3% in Quarter 3 2016, this compares with an increase of 0.6% in Quarter 2 2016. The largest contributor to the increase was rental and leasing activities.

Output of the government and other services industries increased by 0.5% in Quarter 3 2016, this compares with an increase of 0.1% in Quarter 2 2016. The largest contributors to the increase were activities of membership organisations and human health activities.

Further detail on the service industries’ lower level components can be found in the Index of Services statistical bulletin published on 25 November 2016.

Gross value added (GVA) excluding oil and gas extraction increased by 0.4% in Quarter 3 2016 following a 0.7% increase in Quarter 2 2016.

Figure 4 shows the path of GDP and its headline industries (this excludes agriculture, and includes manufacturing which is a sub-component of production) relative to their level of output achieved in Quarter 1 2008.

Industries have shown differing trends following the recent economic downturn. The construction, manufacturing, and production industries were more acutely affected by the deterioration in economic conditions, with output falling by 17.1%, 12.2% and 10.5% respectively between Quarter 1 2008 and Quarter 2 2009. In contrast, output in the service industries only fell by 4.6% from its peak to trough.

Production activity began to grow again in 2010, and the manufacturing and the construction industries showed particular strength – neither industry sustained this growth. Production output fell in both 2011 and 2012, falling below levels seen at the height of the downturn in 2009. Construction output also fell sharply in 2012, with output falling close to its 2009 trough after further contraction in Quarter 1 2013. Construction output improved over much of 2014 and 2015, until a contraction of 0.8% occurred in Quarter 3 2015. Quarter 3 2016 showed a quarterly contraction in construction output of 1.1%, returning output to roughly the same level as in Quarter 1 2015. Although there has been growth across all major components of GDP since the start of 2013, the services industries remain the largest and steadiest contributor to overall economic growth, and are the only headline industry in which output has exceeded pre-downturn levels.

Figure 5 shows the average compound quarterly growth rate experienced over the 5 years prior to the economic downturn in 2008 to 2009, the average growth rate experienced between Quarter 3 2009 and Quarter 2 2014 (5 years following the downturn), and the current quarterly growth rate observed in the most recent period (Quarter 3 2016). Compound average growth is the rate at which a series would have increased or decreased if it had grown or fallen at a steady rate over a number of periods. This allows the composition of growth in the recent economic recovery to be compared with the long run average.

The UK experienced slightly slower average compound GDP growth in the 5 years following the economic downturn compared with the 5 years prior, this is also true of the services industries. In the most recent quarter, production, manufacturing and construction all contracted, by 0.5%, 0.9% and 1.1% respectively. In contrast, services rose by 0.8%, driving headline GDP growth of 0.5% (the same rate as the average between Quarter 3 2009 and Quarter 2 2014).

It should be noted that the third column, which shows the current quarterly growth rate, is based on only 1 data point. Consequently, users should be cautious when making direct comparisons with the long run averages.

Table AA contains output component growth rates back to Quarter 1 2014.

Total domestic expenditure (the sum of all expenditure by UK residents on goods and services that are not used up or transformed in a productive process) decreased by 0.2% in Quarter 3 (July to Sept) 2016. Annually, between 2014 and 2015, total domestic expenditure increased by 2.5%.

Household final consumption expenditure (HHFCE) increased by 0.7% in Quarter 3 2016 and has increased for 7 consecutive quarters (Figure 6). When compared with the same quarter a year ago, HHFCE has been rising each quarter since Quarter 4 (Oct to Dec) 2011, and was 2.6% higher in Quarter 3 2016 than in the same period a year ago. Between 2014 and 2015, HHFCE increased by 2.6%.

General government final consumption expenditure (GGFCE) increased by 0.4% in Quarter 3 2016, following flat growth in Quarter 2 2016. Between Quarter 3 2015 and Quarter 3 2016, GGFCE increased by 0.8%. Between 2014 and 2015, GGFCE increased by 1.5%.

Non-profit institutions serving households’ (NPISH) final consumption expenditure decreased by 0.4% in Quarter 3 2016, following a 1.7% increase in Quarter 2 2016. Between Quarter 3 2015 and Quarter 3 2016, NPISH final consumption expenditure increased by 3.8%. Annually, NPISH final consumption expenditure increased by 0.8% between 2014 and 2015.

In Quarter 3 2016, gross fixed capital formation (GFCF) was estimated to have increased by 1.1% (Figure 7), following an increase of 1.6% in Quarter 2 2016. Between Quarter 3 2015 and Quarter 3 2016, GFCF increased by 1.2%. GFCF increased by 3.4% between 2014 and 2015. More detail on GFCF, including a breakdown of the GFCF components, can be found in the Business Investment statistical bulletin published on 25 November 2016.

Business investment was estimated to have increased by 0.9% in Quarter 3 2016 compared with the previous quarter and decreased by 1.6% between Quarter 3 2015 and Quarter 3 2016. Annually, business investment increased by 5.1% between 2014 and 2015.

Including the alignment adjustment, the level of inventories increased by £3.1 billion in Quarter 3 2016, following an increase of £3.0 billion in Quarter 2 2016. More information on the alignment adjustment can be found in the Balancing GDP section within the background notes of this release.

The trade balance deficit narrowed from £15.7 billion in Quarter 2 2016 to £12.4 billion in Quarter 3 2016 (Figure 8). The trade position reflects exports minus imports. Following a 1.0% decrease in Quarter 2 2016, exports increased by 0.7% in Quarter 3 2016, while imports decreased by 1.5% in Quarter 3 2016 following a 1.3% increase in Quarter 2 2016. Trade in goods data are consistent with the UK trade statistical bulletin published on 9 November 2016.

Figure 9 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures. For Quarter 3 2016, the largest positive contribution to GDP came from net trade, which contributed a positive 0.7 percentage points. Household final consumption expenditure contributed a positive 0.4 percentage points. These positive contributions to GDP were partially offset by gross capital formation, which contributed a negative 0.7 percentage points to GDP growth.

Table AB contains expenditure component growth rates back to Quarter 1 2014.

The gross domestic product (GDP) implied deflator at market prices for Quarter 3 (July to Sept) 2016 is 1.7% above the same quarter of 2015 (Figure 10). Within the expenditure components positive implied deflator contributions in households’ final consumption expenditure, non profit institutions serving households, general government final consumption expenditure, exports of goods and services and imports of goods and services were only partially offset by a negative contribution from gross capital formation. The GDP implied deflator is calculated by dividing current price (nominal) GDP by chained volume (real) GDP and multiplying by 100 to convert to an index.

Table AD contains implied deflator component growth rates back to Quarter 1 (Jan to Mar) 2014.

Gross domestic product (GDP) at current market prices increased by 0.8% in Quarter 3 (July to Sept) 2016, following a 1.5% increase in Quarter 2 (Apr to June) 2016. GDP at current market prices increased by 4.0% when compared with Quarter 3 2015. In 2015, GDP at current market prices increased by 2.6%.

Compensation of employees – which includes both wages and salaries, and employers’ social contributions, increased by 1.3% in Quarter 3 2016, following an increase of 1.9% in Quarter 2 2016 (Figure 11). Between Quarter 3 2015 and Quarter 3 2016, compensation of employees increased by 3.8%. Between 2014 and 2015 compensation of employees increased by 3.4%.

The gross operating surplus (GOS) of corporations (effectively the profits of companies operating within the UK), including the alignment adjustment, increased by 0.8% in Quarter 3 2016 compared with Quarter 2 2016. This follows a decrease of 0.3% in Quarter 2 2016 (Figure 12). Between 2014 and 2015, the gross operating surplus of corporations increased by 0.3%. More information on the alignment adjustment can be found in the Balancing GDP section within the background notes of this release.

Taxes on products and production less subsidies decreased by 0.4% in Quarter 3 2016, following an increase of 1.2% in Quarter 2 2016. Between 2014 and 2015, taxes less subsidies on products and production increased by 2.8%.

Figure 13 shows the contribution made by income components to current price GDP. In Quarter 3 2016, there were positive contributions to GDP from compensation of employees, which contributed 0.6 percentage points, gross operating surplus of corporations, which contributed 0.2 percentage points and other income, which contributed 0.1 percentage points. Taxes on products and production less subsidies made no contribution.

Table AC contains income component growth rates back to Quarter 1 2014.

In Quarter 3 (July to Sept) 2016, gross domestic product (GDP) per head increased by 0.3%, compared with Quarter 2 (Apr to June) 2016. GDP per head is now 1.6% above the pre-downturn peak in Quarter 1 (Jan to Mar) 2008, having surpassed it in Quarter 3 2015 (Figure 14).

Between Quarter 3 2015 and Quarter 3 2016, GDP per head increased by 1.5%. Between 2014 and 2015, GDP per head increased by 1.4% compared with a growth of 2.3% between 2013 and 2014.

GDP per head is calculated by dividing GDP in chained volume measures by the latest population estimates and projections. The population estimates used in this release are those published on 23 June 2016, and the population projections used are those published on 29 October 2015.

The estimates quoted in this international comparison section are the latest available estimates published by the respective bodies (referenced) at the time of preparation of this statistical bulletin and may subsequently have been revised.

All of the areas included within our international comparison saw positive growth when comparing Quarter 3 (July to Sept) 2016 with Quarter 2 (Apr to June) 2016. The European Union (EU28) grew by 0.4%, marking 14 consecutive quarters of positive growth (Figure 15). In the same period, the group of Euro Area countries (EA19) grew by 0.3%. When comparing Quarter 3 2016 with Quarter 3 2015, EA19 grew by 1.6% and the EU28 expanded by 1.8% (Figure 16).

In Quarter 3 2016, the USA’s economy increased by 0.7% and compared with the corresponding quarter of last year, the USA’s GDP increased by 1.5%. Japan’s economy grew at a stronger rate of 0.5% in the latest quarter, following growth of 0.2% in Quarter 2 2016. Japan and the UK grew at the same rate of 0.5% during Quarter 3 2016.

The combined GDP for the Group of Seven (G7) countries increased by 0.6% in Quarter 3 2016, following growth of 0.3% in the previous quarter. When comparing Quarter 3 2015 with Quarter 3 2016, G7 GDP increased by 1.4% and is now 7.8% above the pre-economic downturn peak in Quarter 1 2008 (Figure 17).

Information on the estimates for the USA can be found on the Bureau of Economic Analysis website; information on the estimates for Japan can be found on the Japanese Cabinet Office website. More detailed information for the G7 and the EU countries can be found on the Organisation for Economic Co-operation and Development’s website and Eurostat website, respectively.

GDP and components, previously published on 27 October 2016

Figure 18 shows quarterly revisions between latest and previously published estimates of gross domestic product (GDP). Quarter 3 (July to Sept) 2016 is the earliest period open for revision in this release. GDP for Quarter 3 2016 is unrevised at 0.5%.

Revisions for the output approach are shown in Table AE.

The Quality and Methodology Information report for this statistical bulletin contains important information on:

• the strengths and limitations of the data and how it compares with related data

• users and uses of the data

• how the output was created

• the quality of the output including the accuracy of the data