Statistical bulletin: Gross Domestic Product Preliminary Estimate, Q4 2012

Key points

• GDP was estimated to have decreased by 0.3% in Q4 2012 compared with Q3 2012.
• Output of the production industries was estimated to have decreased by 1.8% in Q4 2012 compared with Q3 2012, following an increase of 0.7% between Q2 2012 and Q3 2012.
• Construction sector output was estimated to have increased by 0.3% in Q4 2012 compared with Q3 2012, following a decrease of 2.5% between Q2 2012 and Q3 2012.
• Output of the service industries was estimated to have been flat in Q4 2012 compared with Q3 2012, following an increase of 1.2% between Q2 2012 and Q3 2012.
• GDP was estimated to have been flat in Q4 2012, when compared with Q4 2011.
• GDP is estimated to have been flat between 2011 and 2012. Users are, however, reminded that this figure is subject to revision in the second estimate of GDP when all quarters of 2012 are open for revision.

Key figures

Gross Domestic Product (GDP) is one of the main indicators of economic growth. Further information on GDP can be found at paragraph 2 in the background notes. Unless otherwise stated, all data in this bulletin are seasonally adjusted and have had the effect of price changes removed (i.e. the data are deflated). Further information on some of the key concepts (including seasonal adjustment and deflation) underlying the estimates can be found at paragraph 4 in the background notes.

Figure 1: GDP and main components

Source: Office for National Statistics

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GDP in the UK grew steadily from 2000 until early-2008 when a financial market shock affected UK and global economic growth. Up until that point, services in the UK had continued to grow steadily, while production output had been broadly flat across the same period. UK construction activity grew strongly at the start of the period before a slight fall in 2005 and 2006. Construction activity then recovered so that it was around 20% higher at the end of 2007 compared with the start of 2001. The deterioration in economic conditions during 2008 had a large effect on the construction and production sectors, but the effect on the service sector was less pronounced.

Coming out of the recession in 2008-09, the rate of GDP growth has been slower compared with the early-2000s, owing to weaknesses in the domestic and global markets. Services have continued to grow steadily from 2009, and are now returning to levels seen at the start of 2008.

Production began to decrease from the start of 2011 following a mild recovery in 2010, as increased inflation and slower wage growth began to reduce households’ real income, and the developing euro area sovereign debt crisis affected business sentiment in the key EU export market for the UK. Construction activity saw a more marked increase than that of production in 2010. However, this was not sustained with activity falling from the final quarter of 2011 due to on-going financial market strains and a deteriorating economic outlook.

Users are reminded that GDP and all of its components are currently referred to 2009, making the average index in 2009=100. It is for this reason the figure above shows all components converging in 2009.

Table 1: Gross Domestic Product Preliminary Estimate key figures

Table source: Office for National Statistics

Supplementary analysis

Figure 2: GDP Contributions to the Quarter on Quarter percentage change to 2012 Q4

Source: Office for National Statistics

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The preliminary estimate of GDP focuses on the growth in output between two consecutive quarters (in this release Q3 and Q4 2012). GDP was estimated to have decreased by 0.3% in the fourth quarter of 2012. The largest contribution to the decrease came from the production sector (as seen in figure 2). A small downward contribution from the services sector was partially offset by a small upward contribution from the construction sector.

The production sector was estimated to have decreased by 1.8% in 2012 Q4, following an increase of 0.7% in the previous quarter. Both mining & quarrying and manufacturing made similar large negative contributions to the quarter on quarter growth rate falling by 10.2% and 1.5% respectively. The decline in mining & quarrying was due in part to an extended and later than usual maintenance period at the UK’s largest North Sea oil field, which reduced oil & gas extraction in 2012 Q4. Manufacturing weakness in Q4 was widespread with the majority of industries showing a decline in comparison with 2012 Q3.

The impact of the decline in mining & quarrying can be seen clearly, if oil & gas extraction is excluded, GDP then falls by 0.1% between 2012 Q3 and 2012 Q4 compared with the fall of 0.3% in total GDP.

The service sector was estimated to be flat in 2012 Q4, although it did make a small downwards contribution to GDP (see figure 2). This followed growth of 1.2% in 2012 Q3. The level of the service sector in 2012 Q3 was boosted by the Olympics and Paralympics (the Games). Some evidence of ‘fall-back’ following this one-off event can be seen in the following industries:

• Sports activities, amusement and recreation

• Accommodation services

• Food and beverages services

• Land Transport

Further details on the growth rates and contributions to GDP from these and other industries are included in the Sector Analysis section and in the article ‘Understanding and Interpreting the Quarter Four 2012 Gross Domestic Preliminary Estimate’.

It is not possible to quantify the overall impact of the Games and indeed some of the activity may have displaced other activity. Retrospective analysis will be carried out, in line with the ONS special events policy, when data for later periods are available.

The effect to levels in 2012 Q3 therefore had an impact on 2012 Q4 service sector growth. The largest impact was in Sports activities, amusement and recreation which fell by 22.5% and contributed 0.2 percentage points to the fall in GDP quarterly growth. The fall was mainly but not exclusively, a result of the increased output in 2012 Q3 from the ticket sales for the Games. 

Sector analysis

Index of production

The index of production was estimated to have decreased by 1.8% in 2012 Q4, following an increase of 0.7% in the previous quarter. Mining and quarrying contributed the most to the decrease, followed by manufacturing. Between 2011 Q4 and 2012 Q4 production output decreased by 2.4%.

Construction

The index of construction output was estimated to have increased by 0.3% in 2012 Q4, following a decrease of 2.5% in the previous quarter. Construction output decreased by 11.0% between 2011 Q4 and 2012 Q4.

Distribution, hotels & restaurants

The index for distribution, hotels & restaurants was estimated to have decreased by 0.4% in Q4 2012, following an increase of 1.9% in the previous quarter. The largest contributions to the decrease were from retail, accommodation and food & beverage services. Accommodation services and food & beverages services both fell back after growth in 2012 Q3 due in part to the Olympics and Paralympics (the Games). Distribution, hotels & restaurants increased by 1.7 % between Q4 2011 and Q4 2012.

Transport, storage & communication

The index for transport, storage & communication was estimated to have increased by 0.7% in 2012 Q4, following an increase of 0.2% in the previous quarter. Motion picture, video & TV and programming & broadcasting made the largest contributions to the increase. Motion picture, video & TV fell by 7.7% in 2012 Q3, with some feedback from survey respondents that the fall was due to reduced demand as people chose to watch the Games rather than films or DVDs. Transport, storage & communication increased by 0.4% between 2011 Q4 and 2012 Q4.

Business services & finance

The index for business services & finance was estimated to have increased by 0.4% in 2012 Q4, following an increase of 0.9% in the previous quarter. Employment activities made the largest positive contribution to the increase. Employment activities also had growth in 2012 Q3 and although it was possible some of this strength was related to the Games, we had no direct feedback from survey respondents to support this. Business services & finance increased by 1.2% between 2011 Q4 and 2012 Q4.

Government & other services

The index for government & other services was estimated to have decreased by 0.7% in 2012 Q4, following an increase of 1.6% in the previous quarter. Sports activities, amusement and recreation activities made the largest contribution to the decrease, with a fall off the high in 2012 Q3 caused by Olympic ticket sales. Government & other services increased by 1.9% between 2011 Q4 and 2012 Q4.

Growth and contributions to growth – output components

Table 2: Growth, quarter-on-quarter percentage, for the output components of GDP

Table source: Office for National Statistics

Table notes:

1. Components may not sum to totals due to rounding

Table 3: Contributions to growth, quarter-on-quarter, for the output components of GDP

Table source: Office for National Statistics

Table notes:

1. Components may not sum to totals due to rounding

Table 4: Growth, year on year percentage, for the output components of GDP

Table source: Office for National Statistics

Table notes:

1. Components may not sum to totals due to rounding

Table 5: Contributions to growth, year on year, for the output components of GDP

Table source: Office for National Statistics

Table notes:

1. Components may not sum to totals due to rounding

Background notes

1. What's New?

   Special Events in 2012

   There have been a number of special events in 2012. This commentary is intended to help users to interpret the statistics in the light of these events. As explained in ONS’s Special Events policy, it is not possible to separate the effects of special events from other changes in the series.

   The Diamond Jubilee celebrations saw changes to the normal pattern of bank holidays in May and June, and an additional day's holiday in June; all of these changes affected estimates for quarter 2 of 2012,and an article gave more information on how the estimates were compiled over this period. The Olympics took place from 27 July to 12 August 2012 (with a few events starting on 25 July) and the Paralympics from 29 August to 9 September. The effects of the Olympics and Paralympics were reflected in the estimates for the months of quarter 3 of 2012. More details of how certain series were expected to be affected were given in an Information Note. A detailed article (229 Kb Pdf) describing possible effects on GDP and comparing with earlier Olympic Games was published by ONS on 25 October. Wider effects, for example the presence of the Olympics influencing the number of non-Olympics tourist visits, may of course have affected any of the summer months.

   The result of these special events in 2012 has been to introduce additional uncertainty in the interpretation of movements between Q2 and Q3 and between Q3 and Q4. Users should therefore consider all the information available when interpreting the statistics.

2. Understanding the data

   Short guide to GDP

   Gross Domestic Product (GDP) is an integral part of the UK national accounts and provides a measure of the total economic activity in the UK. GDP is often referred to as one of the main 'summary indicators' of economic activity and references to 'growth in the economy' invariably refer to the growth in GDP during the latest quarter.

   In the UK three different but equivalent approaches are used in the estimation of GDP:

   • GDP from the output or production approach - GDP(O) measures the sum of the value added created through the production of goods and services within the economy (our production or output as an economy). This approach provides the first estimate of GDP and can be used to show how much different industries (for example, agriculture) contribute within the economy.

   • GDP from the income approach - GDP(I) measures the total income generated by the production of goods and services within the economy. The figures breakdown this income into, for example, income earned by companies (corporations), employees and the self employed.

   • GDP from the expenditure approach - GDP(E) measures the total expenditures on all finished goods and services produced within the economy.

3. Interpreting the data

   Figures for the most recent quarter are provisional and subject to revision in light of (a) late responses to surveys and administrative sources, (b) forecasts being replaced by actual data and (c) revisions to seasonal adjustment factors which are re-estimated every quarter and reviewed annually.

4. Definitions and explanations

   Definitions found within the main statistical bulletin are listed here:

   Index number

   An index number is a number which indicates the change in magnitude relative to the magnitude at a specified point, the latter usually taken as 100. For example, the level of GDP for Q4 2012 is given in Table 1 as 102.9. This means that GDP is 2.9% higher than the reference point, which in the case of GDP is 2009.

   Seasonal adjustment

   The index numbers in this statistical bulletin are all seasonally adjusted. This aids interpretation by removing annually recurring fluctuations, for example, due to holidays or other regular seasonal patterns. Unadjusted data are also available.
   Seasonal adjustment removes regular variation from a time series. Regular variation includes effects due to month lengths, different activity near particular events such as shopping activity before Christmas, and regular holidays such as the May bank holiday.
   Some features of the calendar are not regular each year, but are predictable if we have enough data - for example the number of certain days of the week in a month may have an effect, or the impact of the timing of Easter. As Easter changes between March and April we can estimate its effect on time series and allocate it between March and April depending on where Easter falls. Estimates of the effect of the day of the week and Easter are used respectively to make trading day and Easter adjustments prior to seasonal adjustment.

   Deflation

   It is standard practice to present many economic statistics in terms of ‘constant prices’. This means that changes or growth are not affected by changes in price. The process of removing price changes is known as deflation and the resulting series is often described as volume (as opposed to value). The index numbers in this bulletin are volumes.

   Chained volume

   The indices in this bulletin are ‘chained volume’. This means that successive volume estimates are linked (or chained) together. The process of annual chain-linking was introduced in 2003. More information on chain-linking can be found in the Tuke and Reed (2001) (92.8 Kb Pdf) article.

   Sample sizes and data content

   This is the first estimate of GDP, based on preliminary information for the quarter. Although based on a significant number of returns from businesses, there is still a lot of information to come in, particularly for December.
   The amount of data available at this stage is about 45% of the total data that will be available in one years’ time. The estimates in this release are, however, based on a large amount of information returned by businesses across the whole of the economy. Information on activity (more specifically, turnover or sales) is available from about 44,000 businesses for each of the first two months of the quarter and from about 15,000 businesses for the third month. In addition, the ONS collects price information on nearly 200,000 individual products each month from around 30,000 businesses. This information is used to remove the effect of price changes from the estimates. 

5. Quality

   Basic Quality Information

   All estimates, by definition, are subject to statistical ‘error’ but in this context the word refers to the uncertainty inherent in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques, or the incorporation of new information, which allows the statistical error of previous statements to be reduced. Only rarely are there avoidable ‘errors’ such as human or system failures, and such mistakes are made quite clear when they do occur.

   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.

6. Summary Quality Report

   A Summary quality report (195.1 Kb Pdf) for the Gross Domestic Product Preliminary Estimate release is provided on the National Statistics website.

   This report describes, in detail the intended uses of the statistics presented in this publication, their general quality and the methods used to produce them.

7. National Accounts revisions policy

   In accordance with the National Accounts revision policy, there are no periods open for revision in this release.

   This release includes information available up to 18 January 2013.

   The National Accounts revision policy (67.8 Kb Pdf) is available.

8. Revisions Triangles

   Spreadsheets giving revisions triangles (real time databases) of estimates from 1992 to date are available to download. They can be found under the section Revisions triangles for gross value added at basic prices, chained volume measure.

   The revisions triangles for the components of GDP have been temporarily removed following the recent move to the new SIC. They will be reinstated shortly. The revisions triangles for total GDP are still available and the service sector analysis is still separately available on a monthly basis via the Index of Services dataset.

   Revisions to data provide one indication of the reliability of key indicators. Tables 6 and 7 show summary information on the size and direction of the revisions which have been made to data covering a five year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. The result of the test is that the average revision is not statistically different from zero.

   Table 6 below shows the revisions between the early estimates of GVA. The analysis of revisions between month 1 and month 2 uses month 2 estimates published from February 2008 (2007 Q4) to November 2012 (2012 Q3). The analysis of revisions between month 2 and month 3 uses month 3 estimates published from March 2008 (2007 Q4) to December 2012 (2012 Q3).

   Table 6: Revisions to early estimates of GVA growth

   	GVA Growth in the latest period  (per cent)	Revisions between early estimates of GVA growth (quarterly, CVM)
   Revisions to GVA growth		Average over the last five years	Average over the last five years without regard to sign (average absolute revision)
   Between M1 and M2	-0.3	0.03	0.07
   Between M2 and M3	-0.3	-0.05	0.09

   Table source: Office for National Statistics

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   Table 7 below shows the revisions to GVA growth between the estimate published three months after the end of the quarter and the equivalent estimate three years later. The analysis uses month 3 estimates first published from March 2005 (2004 Q4) to December 2009 (2009 Q3).

   Table 7: Revisions to GVA growth between the estimate published three months after the end of the quarter and the equivalent estimate

   	GVA growth in the latest period	Revisions between early estimates of GVA growth (quarterly, CVM)
   Revisions to GVA growth	(per cent)	Average over the last five years	Average over the last five years without regard to sign (average absolute revision)
   GVA growth (quarterly CVM)	-0.3	-0.05	0.36

   Table source: Office for National Statistics

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   An article titled 'Understanding the quality of early estimates of Gross Domestic Product' (122.9 Kb Pdf) , which was first published in December 2009, is available on the National Statistics website.

   This article presents an analysis of revisions to the early estimates of GDP based on a long period database of real time GDP back to 1955. This database is regularly updated and is available on the ONS website. 

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    Details of the policy governing the release of new data are available from the press office. Also available is a Pre release Access List (25.4 Kb Pdf) of those given pre-publication access to the contents of this release:

    A complete set of series in the statistical bulletin are available to download within the data section of this publication.
    

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    Code of Practice

    The United Kingdom Statistics Authority has designated these statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

    Designation can be broadly interpreted to mean that the statistics:

    • meet identified user needs,

    • are well explained and readily accessible,

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    • and are managed impartially and objectively in the public interest.

    Once statistics have been designated as National Statistics it is a statutory requirement that the Code of Practice shall continue to be observed.

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