UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.2% between Quarter 3 (July to Sept) 2018 and Quarter 4 (Oct to Dec) 2018; the quarterly path of GDP through 2018 remains unrevised.
In the output approach to measuring GDP, growth in the latest quarter was driven by professional, scientific, administration and support services within the services sector, while production and construction both contributed negatively to GDP growth.
In the expenditure approach to measuring GDP, private consumption and government consumption contributed positively, while gross capital formation and net trade contributed negatively to GDP growth.
Business investment decreased by 1.4% in Quarter 4 2018, the fourth consecutive quarter in which there has been a decrease in growth.
GDP growth was estimated to have slowed to 1.4% between 2017 and 2018, it was last this low in 2012 and last weaker in 2009.
Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP; the output approach, the expenditure approach and the income approach. Further information on all three approaches to measuring GDP can be found in the short guide to national accounts (PDF, 317KB).
Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated), with the exception of income data, which are only available in current prices.
What’s changed in this release?
In the latest Labour Market release, a revision occurred due to taking on board the latest information from the Annual Survey of Hours and Earnings to improve the estimation of earnings of employees of small businesses. In this release we have incorporated these updated estimates in our calculation of compensation of employees (CoE) and mixed income. This change has caused minimal revisions to these components.
In this release we have amended the way we display contributions to GDP growth for output, expenditure and income components. Contributions to GDP growth are now published to two decimal places, consistent with the Monthly GDP publication, and can be found in data tables AA, AB and AC.Back to table of contents
UK gross domestic product (GDP) is estimated to have slowed to 0.2% in Quarter 4 (Oct to Dec) 2018, slightly below the latest forecasts produced by the Bank of England (PDF, 4.27MB) and the National Institute of Economic and Social Research (PDF, 317.7KB). Following a pickup in activity over the summer months – in part due to warm weather and the World Cup – real GDP growth slowed markedly in the final quarter of 2018, with GDP falling by 0.4% in the month of December. Construction, production and services output fell in the month, the first time that there has been such a broad-based fall in monthly output since September 2012. Previous analysis showed that estimates of monthly GDP can be volatile in nature, with almost one in every four months in the past 21 years showing negative GDP growth, although the more stable rolling three-month figure points to an underlying slowing in the UK economy. More information on the monthly estimates of GDP can be found in the GDP monthly estimate, UK: December 2018 publication.
Compared with the same quarter in the previous year, the UK economy is estimated to have grown by 1.3%. It has not been weaker since Quarter 2 (Apr to June) 2012 and continues its relatively subdued performance over the last year (Figure 1). Today’s estimates also provide the first snapshot of how the economy performed in 2018, showing that UK GDP increased by 1.4%, the weakest it has been since 2009.
In line with the National Accounts Revisions Policy, revisions are open back to Quarter 1 (Jan to Mar) 2018 as part of this publication. There have been no revisions to the quarterly path of real GDP, although there have been some revisions to individual components of GDP and some small revisions to nominal GDP. Cumulative nominal GDP is now estimated to have increased by 2.4% over the first three quarters of 2018, down from the previous estimate of 2.6%. Today’s estimates show that nominal GDP increased by 0.6% in the final quarter of the year.
The implied GDP deflator represents the broadest measure of inflation in the domestic economy, reflecting changes in the price of all goods and services that comprise GDP. This includes the price movements in private and government consumption, investment and the relative price of exports and imports. In the year to Quarter 4 2018, the implied GDP deflator increased by 1.6%. This is a slowing from the previous quarter, reflecting an easing in the increases in prices in private consumption, government consumption and gross fixed capital formation. There have been downward revisions to the 2018 quarterly path of the implied GDP deflator, which reflect broad-based revisions to the underlying components, and it is estimated to have increased by 1.7% in 2018.Back to table of contents
The output measure of gross domestic product (GDP) increased 0.2% in Quarter 4 (Oct to Dec) 2018. There has been a slight easing in services output growth to 0.4%, following a relatively strong performance throughout the summer months. Production output fell by 1.1% – its largest decline since Quarter 4 2012 – including a 0.9% fall in manufacturing output. Following two consecutive quarters of growth, construction output fell by 0.3% in Quarter 4. The annual figures for 2018 show that there was a slowing of growth in all three of these industries. Services output increased by 1.7% in 2018, it was last lower in 2010, while there has also been a notable easing in growth in the production and construction industries.
Services output growth slowed to 0.4% in Quarter 4, reflecting a slowdown across a number of industries. This was also seen in the December 2018 UK Services Purchasing Managers Index (PDF, 158KB), which noted that survey respondents commented that “Brexit-related concerns were a key factor weighing on business-to-business spending at the end of 2018”, as business activity rose at one of its slowest rates over the previous two and a half years. In addition, wholesale and retail trade slowed to 0.5% in Quarter 4 2018, following growth of 1.2% in the previous quarter. The latest official figures show that retail sales fell by 0.2% in the three months to December 2018, continuing the slowing in the underlying three-month trend as the boost seen throughout the summer months continues to wane. This is echoed in the recent British Retail Consortium figures who recorded flat retail sales in the year to December.
Figure 2 shows that there has been a 0.6% increase in business and financial services in Quarter 4, driven by an increase in the professional, scientific, administration and support services and real estate industries. This has been corroborated in the latest Bank of England Agents Summary of Business Conditions (PDF, 1.40MB), which reported that demand for business and financial services had continued to grow at a modest rate, as “sectors such as commercial property, recruitment and business advisory services reported that demand had been more resilient than they expected”.
In the production industry, output fell by 1.1% in Quarter 4 2018, marking the weakest quarterly growth since Quarter 4 2012. The decline reflects falls across all main areas of production (Figure 3), which is the first such occurrence since the first quarter of 2009. The 0.9% fall in manufacturing output in Quarter 4 was broad-based with ten of the thirteen manufacturing industries experiencing a contraction in activity. Manufacturing output of transport equipment fell 2.7%, in part reflecting the partial closures of multiple car manufacturing plants. The fall in transport equipment is also echoed in the recent Society of Motor Manufacturers and Traders survey. The fall in production was attributed to “regulatory changes and ongoing uncertainty over future diesel policy and taxation, which were exacerbated by declining consumer and business confidence”. Today’s monthly figures show that manufacturing output has now fallen for six consecutive months, which last happened in late 2008 and early 2009 at the time of the financial crisis. Despite this, in Quarter 3 (July to Sept) 2018 we continued to see a small increase in growth in manufacturing output of 0.2%, in part due to a weaker base period in Quarter 2 2018.
There was also a fall of 1.4% in mining and quarrying, which broadly reflects higher than usual levels of output over the summer months. Elsewhere, electricity, gas, steam and air output fell by 2.0% in Quarter 4, in part reflecting a strong performance in the previous quarter. Above average temperatures in the final three months of the year may have also played a role in the overall slowdown in production of the energy industry.
In the construction industry, output fell by 0.3% in Quarter 4, primarily reflecting a sharp 2.8% fall in December (Figure 4). This monthly fall reflected a 6.8% fall in new private housing work and a 5.9% fall in non-housing repair and maintenance. There also have been revisions to the monthly path in 2018, including downward revisions to the figures for October and November 2018 – see Construction Output in Great Britain: December 2018 for more information. The latest Bank of England Agents Summary of Business Conditions (PDF, 1.4MB) highlights that activity in the construction industry remains modest, while the Construction Purchasing Managers’ Index slowed in December, with signs of heightened uncertainty weighing on new orders.Back to table of contents
The expenditure measure of gross domestic product (GDP) increased by 0.2% in Quarter 4 (Oct to Dec) 2018. Private and government consumption contributed positively to GDP growth, while the quarterly falls in gross capital formation (GCF) and net trade explain the slowing in the quarter. Figure 5 shows the extent of the slowdown of the contribution of private consumption in recent years, which likely reflects the effect of a squeeze in purchasing power. It also shows the positive contribution of gross capital formation in 2018, although this reflects movements in inventories and valuables, as gross fixed capital formation was flat last year. Having provided a boost to GDP growth in 2017, net trade fell in 2018 – a possible reflection of the waning effects of sterling’s depreciation and a slowing in momentum in the global economy.
Household consumption increased by 0.4% in Quarter 4 2018, broadly in line with the subdued quarterly growth rate experienced over 2017 and 2018. The relatively muted growth in household consumption was also noted in the latest Bank of England Agents’ Summary of Business Conditions (PDF, 1.4MB), which noted that “uncertainty related to Brexit and subdued housing market activity weighed on demand”. It also reported that there had been evidence that Black Friday sales had failed to meet expectations, though some of this may have reflected that less spending had been brought forward from December. The GfK Consumer Confidence figures in December found that consumers were much less confident at the end of the year, with its reading at its lowest for more than five years.
Government consumption increased by 1.4% in Quarter 4 2018, primarily reflecting an increase across general public services and defence spending. Expenditure in these areas has been lower across this financial year compared to previous years, however, the latest estimates show that there has been a pickup in such spend.
Gross fixed capital formation fell by 0.5% in the final three months of 2018 and was flat over the year – the first time that there had been no increase in capital investment since 2009, in which the UK was in the midst of the effects of the financial crisis. There were continued falls in investment in transport equipment in Quarter 4, although these estimates can be volatile. Early estimates of business investment can be prone to revision, but today’s estimates show it fell by 1.4% in the final quarter of the year. This is the fourth consecutive quarter in which such capital expenditure has fallen, the first such instance since 2009 (Figure 6). Compared with the same quarter in the previous year, business investment fell by 3.7% – the largest fall since the first quarter of 2010. In the latest Inflation Report, the Bank of England observe that this weakness appears to “primarily reflect Brexit and associated uncertainty”. This subdued picture has been corroborated in a range of business surveys, many of which cite the effect of heightened uncertainty. The Quarter 4 Decision Maker’s Panel highlights Brexit as one of the top sources of uncertainty, while the latest Deloitte CFO Survey reports that perceptions of uncertainty continued to rise in the final quarter of 2018, while the outlook for capital expenditure has deteriorated.
Alignment adjustments 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 the Quality and methodology section. When these adjustments are removed, the underlying data shows a slight increase in stocks being held by UK companies in the most recent quarter. There has been anecdotal evidence in a range of business surveys that stockpiling has taken place of late, although this is difficult to unpick in the official estimates.
There have been some notable movements in non-monetary gold (NMG) in Quarter 4. These do not affect headline GDP as these are recorded as equivalent offsetting impacts in the UK National Accounts, but this is reflected in the composition of GDP growth. There was a sizeable export of NMG in Quarter 4, reflected in an offsetting fall in the acquisition less disposal of valuables, which helps explain the size of the contribution of gross capital formation. Despite this NMG movement, net trade made a negative contribution to GDP growth in the last three months of 2018, as the 0.9% increase in exports was more than offset by the 1.3% increase in imports. This included a 0.9% fall in exports of goods, which is in line with the latest Bank of England Agents’ Summary of Business Conditions that notes a slowdown in the export of manufactured goods. This is said to have reflected “a combination of a waning boost from sterling’s 2016 depreciation and weaker demand for diesel cars, rail and marine goods”. Figure 7 shows the revisions to the quarterly path of net trade contributions, which primarily reflect the incorporation of improved survey returns. That said, the net effect of these revisions is relatively minimal – the cumulative contribution of net trade to GDP growth over the first three quarters of 2018 is largely unchanged.Back to table of contents
Growth in nominal gross domestic product (GDP) slowed to 0.6% in Quarter 4 (Oct to Dec) 2018, following an increase of 1.1% in the previous quarter. This was driven by an increase of 0.9% in compensation of employees (CoE), reflecting an easing in wages and salaries and employers social contributions (Figure 8). Gross operating surplus (GOS) of corporations fell by 0.8%, reflecting a fall in the profits of private non-financial corporations. Other income increased by 1.2%, slowing slightly from growth of 1.4% in Quarter 3 (July to Sept) 2018.Back to table of contents
The Gross domestic product (GDP) Quality and Methodology Information report contains important information on:
- the strengths and limitations of the data and how it compares with related data
- uses and users of the data
- how the output was created
- the quality of the output including the accuracy of the data
The national accounts are drawn together using data from many different sources. This ensures that the national accounts are comprehensive and provide different perspectives on the economy, for example, sales by retailers and purchases by households.
Important quality issues
There are common pitfalls in interpreting data series and these include:
- expectations of accuracy and reliability in early estimates are often too high
- revisions are an inevitable consequence of the trade-off between timeliness and accuracy
- early estimates are based on incomplete data
Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error”.
Many different approaches can be used to summarise revisions; the “Validation and quality assurance” section in the Quality and Methodology Information report analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.
Reaching the GDP balance
The different data content and quality of the three approaches – the output approach, the expenditure approach and the income approach – dictates the approach taken in balancing quarterly data. In the UK, there are more data available on output in the short-term than in either of the other two approaches. However, to obtain the best estimate of GDP (the published figure), the estimates from all three approaches are balanced to produce an average, except in the latest two quarters where the output data takes the lead due to its larger data content.
Information on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP is available. The size and direction of the quarterly alignment adjustments, when considered alongside the statistical discrepancy, in Quarter 4 2018 indicate that in this quarter the levels of expenditure and income are lower than the level of output.
Alignment adjustments, found in Table M of the first quarterly estimate of GDP datasets in this release, have a target limit of plus or minus £2,000 million on any quarter. To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where required. They are applied to the individual components where data content is particularly weak in a given quarter due to a higher level of forecast content. The balancing adjustments applied in this quarter are shown in table 1, the resulting series should be considered accordingly.
|GDP measurement approach and|
component adjustment applied to
|Trade in Services||Current prices and|
Chained volume measure
|Inventories||Current prices and|
Chained volume measure
|Valuables||Current prices and|
Chained volume measure
|Financial corporations GOS||Current prices||-250|
|Other income||Current prices||-250||-250||-250|
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