Second Estimate of GDP: Quarter 4 (Oct to Dec) 2015

UK GDP in volume terms was estimated to have increased by 0.5% between Quarter 3 (July to Sept) 2015 and Quarter 4 (Oct to Dec) 2015, unrevised from the preliminary estimate of GDP published on 28 January 2016.

Between 2014 and 2015, GDP in volume terms increased by 2.2%, unrevised from the previous estimate. Between Quarter 4 2014 and Quarter 4 2015, GDP in volume terms increased by 1.9%, unrevised from the previously published estimate.

GDP in current prices remained flat between Quarter 3 2015 and Quarter 4 2015.

GDP per head in volume terms was estimated to have increased by 0.3% between Quarter 3 2015 and Quarter 4 2015. Between 2014 and 2015, GDP per head increased by 1.5%.

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 second estimate of GDP is based on revised output data, together with data from some expenditure and income components. 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 (105.5 Kb Pdf).

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.

Growth for GDP and its components is given between different periods. Latest year-on-previous-year gives the annual growth between one calendar year and the previous. Latest quarter-on-previous-quarter growth gives growth between one quarter and the quarter immediately before it. Latest quarter-on-corresponding-quarter-of-previous-year shows the growth between one 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 1 (Jan to Mar) 2015.

About the Second Estimate of GDP

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 quality of the GDP estimate

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, e.g. 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 data from HM Revenue & Customs (HMRC) which are subject to quality checks and challenge from 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 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 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, HMRC 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 - from producers, data compilers and from users of the statistics - before final sign off.

Unlike many short term indicators published by the ONS, 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 and 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/non-sampling error associated with GDP.

One dimension of measuring accuracy is reliability, which is measured using evidence from analyses of revision to assess the closeness of early estimates to subsequently estimated values. Many users try to minimise the impact of uncertainty through 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 (518.9 Kb Pdf) 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?’

As seen in Figure 1, GDP in the UK grew steadily during the 2000s until a financial market shock affected UK and global economic growth in 2008 and 2009. Economic growth resumed towards the end of 2009, but generally at a slower rate than the period prior to 2008. From the peak in Quarter 1 (Jan to Mar) 2008 to the trough in Quarter 2 (Apr to June) 2009 GDP decreased by 6.1%. This can be compared to 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 by 2.2% from the peak in Quarter 2 1990 to the trough in Quarter 3 (Jul to Sept) 1991. In the early 1980s downturn, GDP decreased by 5.6% 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 low or negative GDP growth. This two-year period coincided with special events (for example severe winter weather in Quarter 4 (Oct to Dec) 2010, the Diamond Jubilee in Quarter 2 2012 and the London Olympics and Paralympics in Quarter 3 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 2 2013.

Quarter 4 2015 has shown continued strength with GDP growing by 0.5% compared with the previous quarter, by 1.9% between Quarter 4 2014 and Quarter 4 2015, and by 2.2% between 2014 and 2015. GDP has now increased for 12 consecutive quarters, breaking a pattern of slow and erratic growth from 2009.

Annex A contains output component growth rates back to Quarter 1 (Jan to Mar) 2015.

Two of the four main output industrial groupings within GDP showed increases in Quarter 4 (Oct to Dec) 2015 compared with Quarter 3 (July to Sept) 2015, with production and construction falling in this period. Within production, three of the four components decreased with only manufacturing showing flat growth. This resulted in overall negative growth in total production. All components within the service industries showed increases.

Production output decreased by 0.5% in Quarter 4 2015 compared with Quarter 3 2015, revised down 0.3 percentage points from the previously published estimate. Within the production sub-industries, output from mining and quarrying, including oil and gas extraction, decreased by 2.3%; manufacturing (the largest component of production) remained flat (Figure 2), and electricity, gas, steam and air conditioning supply industries decreased by 2.4%. Water supply and sewerage decreased by 0.4%.

When comparing Quarter 4 2015 with Quarter 4 2014, production output increased by 0.6%, revised down 0.5 percentage points from the previously published estimate. Mining and quarrying, including oil and gas extraction, increased by 8.7%, while water supply and sewerage increased by 4.0%. Manufacturing fell by 1.0% between these periods while the electricity, gas, steam and air conditioning supply industries decreased by 1.3%.

Construction output decreased by 0.4% in Quarter 4 2015, revised down 0.3 percentage points from the previously published estimate. Construction output increased by 0.4% between Quarter 4 2014 and Quarter 4 2015, revised up 0.1 percentage points from the previously published estimate.

The service industries increased by 0.7% in Quarter 4 2015 (Figure 3), unrevised from the previous estimate, marking the twelfth consecutive quarter of positive growth. This follows a 0.6% increase in Quarter 3 2015.

Output of the distribution, hotels and restaurants industries increased by 1.4% in Quarter 4 2015, following a 0.9% increase in Quarter 3 2015. The increase in the latest quarter was largely due to retail trade, except of motor vehicles and motorcycles.

Output of the transport, storage and communication industries increased by 0.9% in Quarter 4 2015, following a 0.9% increase in Quarter 3 2015. The largest contributor to the increase was computer programming, consultancy and related activities.

Business services and finance industries’ output increased by 0.7% in Quarter 4 2015, following a 0.6% increase in Quarter 3 2015. The largest contributors to the increase were office administrative, office support and other business support activities and imputed rent.

Output of government and other services increased by 0.2% in Quarter 4 2015, after increasing by 0.3% in Quarter 3 2015. In the latest quarter the largest upward contribution came from education.

Further detail on the service industries’ lower level components can be found in the Index of Services statistical bulletin published on the same day as this release.

Gross value added (GVA) excluding oil and gas extraction increased by 0.5% in Quarter 4 2015 following a 0.4% increase in Quarter 3 2015.

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 from peak to trough by 17.1%, 12.3% and 10.6% respectively. In contrast, output in the services industry only fell by 4.1% from its peak to trough.

Production and construction began to grow again in 2010, with manufacturing showing particular strength – neither industry sustained this growth. Production output fell between 2011 and 2013, 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. Construction output in 2015 as a whole was 3.4% higher than 2014, much lower than the rate of growth for 2014 (7.5%). This was largely due to the 2 consecutive quarters of negative growth in the second half of 2015, with construction output falling by 1.7% and 0.4% in Quarter 3 2015 and Quarter 4 2015 respectively. Although there has been some growth across all major components of GDP since the start of 2013, the service industry remains the largest and steadiest contributor to overall economic growth, and is the only headline industry in which output has exceeded pre-downturn levels.

Figure 5 shows the average compound quarterly growth rate experienced over the five years prior to the economic downturn in 2008, the average growth rate experienced between Quarter 3 2009 and Quarter 2 (Apr to June) 2014 (five years following the downturn), and the current quarterly growth rate observed in the most recent period (Quarter 4 2015). 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 to the long run average.

The UK experienced slightly slower average compound GDP growth in the five years following the economic downturn compared with the five years prior: this is also true of the services industry. Figure 5 shows that in Quarter 4 2015, only the services industry outperformed its post-downturn average rate of growth, with production and construction being relatively weak (falling by 0.5% and 0.4% respectively) while manufacturing was broadly stable. In Quarter 4 2015 the accommodation and food services have shown particular strength when compared to both the production 5 year average, prior and post downturn.

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

Annex B contains expenditure component growth rates back to Quarter 1 (Jan to Mar) 2015.

Gross 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) increased by 0.8% in Quarter 4 (Oct to Dec) 2015. Annually, between 2014 and 2015 gross domestic expenditure increased by 2.7%.

Household final consumption expenditure (HHFCE) increased by 0.7% in Quarter 4 2015, and has increased for 10 consecutive quarters (Figure 6). The largest contribution to the increase in household final consumption expenditure in Quarter 4 2015 came from furniture and furnishings. When compared with the same quarter a year ago, HHFCE has been rising each quarter since Quarter 4 2011 and was 3.1% higher in Quarter 4 2015 than in the same period a year ago. Between 2014 and 2015 HHFCE increased by 3.0%.

Note that in the quarters of 2013 only, “National” HHFCE chained volume measure data is not the sum of its components.

Government final consumption expenditure increased by 0.5% in Quarter 4 2015, following a 0.6% increase in Quarter 3 (July to Sept) 2015. Between Quarter 4 2014 and Quarter 4 2015, government final consumption expenditure increased by 2.5%. Between 2014 and 2015, government final consumption expenditure increased by 1.7%.

Non-profit institutions serving households’ (NPISH) final consumption expenditure increased by 0.5% in Quarter 4 2015, following a 1.5% fall in Quarter 3 2015. Between Quarter 4 2014 and Quarter 4 2015, NPISH final consumption expenditure increased by 3.2%. Annually, NPISH final consumption expenditure increased by 0.9% between 2014 and 2015.

In Quarter 4 2015, gross fixed capital formation (GFCF) was estimated to have decreased by 0.1% (Figure 7). Between Quarter 4 2014 and Quarter 4 2015, GFCF increased by 2.7%. GFCF increased by 4.2% 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 the same day as this release.

Including the alignment adjustment, the level of inventories increased by £3.6 billion in Quarter 4 2015, following a rise of £1.7 billion in Quarter 3 2015.

The trade balance deficit widened from £14.7 billion in Quarter 3 2015 to £16.6 billion in Quarter 4 2015 (Figure 8). The trade position reflects exports minus imports. Following a 0.5% decrease in Quarter 3 2015, exports decreased by 0.1% in the latest quarter, while imports increased by 1.2% in Quarter 4 2015 following a 2.7% rise in Quarter 3 2015.

Figure 9 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures. For Quarter 4 2015, the largest positive contribution to GDP came from household final consumption expenditure, which contributed 0.4 percentage points. Gross capital formation contributed 0.3 percentage points to GDP and general government final consumption expenditure contributed 0.1 percentage points. There was one negative contribution to GDP; Net Trade contributing a negative 0.4 percentage points. Non-profit institutions serving households made a flat contribution to GDP.

Annex D contains implied deflator component growth rates back to Quarter 1 (Jan to Mar) 2015.

The GDP implied deflator at market prices for Quarter 4 (Oct to Dec) 2015 is flat compared to the same quarter of 2014 (Figure 10). 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. It is not used in the calculation of GDP; the deflators for expenditure components, which are the basis for the implied GDP deflator, are used to calculate nominal GDP, not real GDP.

Annex C contains income component growth rates back to Quarter 1 (Jan to Mar) 2015.

GDP at current market prices showed flat growth in Quarter 4 (Oct to Dec) 2015, following a 0.4% increase in Quarter 3 (July to Sept) 2015. GDP at current market prices increased by 1.9% when compared to Quarter 4 2014. In 2015, GDP at current market prices increased by 2.6%.

Compensation of employees – which includes both wages and salaries, and pension contributions, increased by 0.7% in Quarter 4 2015, following an increase of 0.6% in Quarter 3 2015 (Figure 11). Between Quarter 4 2014 and Quarter 4 2015, compensation of employees increased by 3.1% and increased by 3.6% between 2014 and 2015.

The gross operating surplus of corporations (effectively the profits of companies operating within the UK), including the alignment adjustment, decreased by 3.6% in Quarter 4 2015 compared with the previous quarter; this follows an increase of 0.4% in Quarter 3 2015 (Figure 12). Between 2014 and 2015 the gross operating surplus of corporations decreased 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 less subsidies on products and production increased by 2.1% in Quarter 4 2015, following an increase of 0.3% in Quarter 3 2015. Between 2014 and 2015 taxes less subsidies on products and production increased by 2.1%.

Figure 13 shows the contribution made by income components to current price GDP. In Quarter 4 2015, there were positive contributions to GDP from compensation of employees, other income and taxes less subsidies which all contributed 0.3 percentage points respectively. There was a negative contribution of 0.8 percentage points from gross operating surplus of corporations.

In Quarter 4 (Oct to Dec) 2015, GDP per head increased by 0.3% compared with Quarter 3 (July to Sept) 2015. GDP per head is now 0.7% above its pre-downturn peak in Quarter 1 (Jan to Mar) 2008, having surpassed it in Quarter 2 (Apr – June) 2015. Headline GDP exceeded the level of its pre-downturn peak in Quarter 2 2013 and is now 6.7% above its pre-downturn peak (Figure 14).

Between Quarter 4 2014 and Quarter 4 2015, GDP per head increased by 1.2%. Between 2014 and 2015, GDP per head increased by 1.5% compared to a growth of 2.1% 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 25 June 2015 and the population projections used are those published 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 areas included within our international comparison, saw positive growth, except Japan, when comparing Quarter 4 (Oct to Dec) 2015 with Quarter 3 (Jul to Sep) 2015 (Figure 15). The European Union (EU28) grew by 0.3% in the fourth quarter of 2015, marking 11 consecutive quarters of positive growth (Table 2). In the same period, the eurozone (EA19) also expanded by 0.3%. When comparing Quarter 4 2014 with Quarter 4 2015, EA19 grew by 1.5 % whilst the EU28 expanded by 1.8% (Figure 16).

Germany saw its GDP increase by 0.3% between Quarter 3 2015 and Quarter 4 2015, following a similar increase in the previous quarter. GDP for France increased by 0.2% in the same period, following 0.3% growth in Quarter 3 2015.

In the fourth quarter of 2015 the USA’s economy increased by 0.2%. Between Quarter 4 2014 and Quarter 4 2015, GDP for the USA increased by 1.8%. GDP for Japan decreased by 0.4% in Quarter 4 2015, following an increase of 0.3% in the previous quarter, although between Quarter 4 2014 and Quarter 4 2015, Japan’s economy grew by 0.7%.

GDP for the Group of Seven (G7) countries increased by 0.1% in Quarter 4 2015, following a 0.4% increase in the previous quarter. When comparing Quarter 4 2014 with Quarter 4 2015, G7 GDP increased by 1.5% and is now 6.2% above its pre-recession peak in Quarter 1 (Jan to Mar) 2008.

More detailed information on these estimates can be found on the Eurostat website. 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 while information for the G7 countries can be found on the Organisation for Economic Co-operation and Development’s website.

Figure 17 shows GDP for the UK, EU, the USA and Japan, all indexed to Quarter 1 2008 (the pre-downturn peak in the UK) to allow comparison of each since that period.

GDP and components, previously published on 28 January 2016

Figure 18 shows quarterly revisions between latest and previously published estimates of GDP. Quarter 1 (Jan to Mar) 2015 is the earliest period open for revision in this release.

Detailed revisions for the 3 GDP approaches

• output revisions are shown in Annex E

• expenditure revisions are shown in Annex F

• income revisions are shown in Annex G