Quarterly national accounts: January to March 2018

• UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.2% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018; the 0.1 percentage points upward revision since the second estimate reflects improvements to the measurement of construction output.

• The services industries increased by 0.3% in Quarter 1 2018, continuing to show a weakening in domestic consumer-facing activities; while construction decreased by 0.8%.

• Household spending grew by 0.2%, while business investment decreased by 0.4% between Quarter 4 2017 and Quarter 1 2018.

• GDP was estimated to have increased by 1.7% between 2016 and 2017, a downward revision of 0.1 percentage points from the second estimate; this was slightly lower than the 1.8% growth seen between 2015 and 2016.

• Estimates in this bulletin are consistent with our annual UK National Accounts, The Blue Book 2018 publication, to be published on 31 July 2018.

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.

The quarterly national accounts are typically published around 90 days after the end of the quarter. At this stage the data content of this estimate from the output approach to GDP has risen since the second estimate to around 91% of the total required for the final output-based estimate. There is also around 90% data content available to produce estimates of GDP from the expenditure approach and around 70% data content from 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.

Blue Book 2018

This release contains data that are consistent with the UK National Accounts, The Blue Book 2018, which will be released on 31 July 2018. The Blue Book is the UK’s annual compendium of national accounts data and incorporates a number of improvements to methods and sources into the UK’s National Accounts. Changes have been made in line with international standards adopted by all European Union (EU) member states and with worldwide best practice. These, and additional improvements we are making, will ensure that our national accounts continue to provide the best possible framework for analysing the UK economy and comparing it with other countries.

We have published a number of articles detailing these changes and their impact on the national accounts. The main changes are to:

• net spread earnings
• gross fixed capital formation (GFCF) other machinery and equipment
• pensions
• trade in goods processing systems
• Motor Vehicle Duty
• Rail for London
• alignment of UK National Accounts and public sector finances statistics

Further detail on these changes is available in the Revisions to GDP section.

Reference and base year

Estimates in this bulletin are consistent with our annual UK National Accounts, The Blue Book 2018 publication, to be published on 31 July 2018. In line with usual practice, the last base year and reference year for the chained volume estimates have moved forward one year from 2015 to 2016.

UK gross domestic product (GDP) increased by 0.2% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018, revised upwards by 0.1 percentage points from the second estimate of GDP.

In this release all periods are open for revision. Figures for 2016 have been through the annual supply and use balancing process for the first time. Estimates for the “quarterly tail” (2017 onwards) have also been open to revision based on new data and the improved methodology.

There were small revisions to quarter-on-quarter GDP growth in Quarter 1 2017, Quarter 3 (July to Sept) 2017 and Quarter 1 2018. Upward revisions to quarterly growth in both Quarter 1 2017 and Quarter 1 2018 came from the output approach to GDP, whereas the downward revision to growth in Quarter 3 2017 came from downward revisions to both the expenditure and income measures.

Table 1 shows GDP and the headline economic indicators from 2016 onwards.

Figure 1 shows the seasonally adjusted level of GDP along with quarterly growths. The growth between Quarter 4 2017 and Quarter 1 2018 is the 21st consecutive quarterly increase and continues the UK’s pattern of growth since Quarter 1 2013.

Growth in UK GDP is now 10.4% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 (Apr to June) 2013.

When looking at UK GDP growth in volume terms in the current quarter (Quarter 1 2018) compared with the same quarter a year ago (Quarter 1 2017), GDP increased by 1.2%, unrevised from the second estimate of GDP. This is the slowest rate of growth since Quarter 2 2012 and continues the slowdown in growth through 2017 and into early 2018.

Implied deflator

The GDP implied deflator at market prices for Quarter 1 2018 is 1.6% above the same quarter of 2017. The GDP implied deflator represents price changes in the domestic production of goods and services and 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 directly in the compilation of real GDP.

GDP per head

In Quarter 1 2018, GDP per head grew by 0.1% compared with Quarter 4 2017. GDP per head is now 2.6% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed this peak in Quarter 2 2015 (Figure 2).

GDP per head is calculated by dividing GDP in chained volume measures by the population estimates and projections. It is not a measure of productivity or well-being, but is a useful statistic as it removes the impact of the changing size of the population from headline GDP figures.

The population estimates used in this release are those published on 28 June 2018 and the population projections used are those published on 26 October 2017.

UK gross domestic product (GDP) grew by 1.7% between 2016 and 2017, revised downwards by 0.1 percentage points from the second estimate of GDP published on 25 May 2018. The 2017 annual picture shows a slight slowdown in growth when compared with the 1.8% growth between 2015 and 2016, and is the slowest rate of annual growth since 2012, when growth was 1.4%.

The latest estimates of annual growth present a more divergent picture between the different approaches to measuring GDP: expenditure, income, and output (Table L in the Quarterly national accounts data tables details the annual growth rates for the three approaches). In particular, the income approach is weaker through 2017 compared with the expenditure and output approaches. Our blog Getting the balance right – how ONS creates a single estimate of GDP provides more detail on how GDP is balanced.

Table 2 presents the contributions to annual growth in 2016 and 2017 for the main components of the three approaches to measuring GDP. Further information relating to the contributions to GDP growth can be found in Tables AA, AB and AC of the Quarterly national accounts data tables.

The output approach to measuring gross domestic product (GDP) involves estimating production activity within the UK economy. It increased by 0.2% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018. This was revised upwards by 0.1 percentage points from the second estimate of GDP, mostly as a result of improvements to the measurement of construction data, which are discussed in the Revisions to GDP section.

Figure 3 shows the contributions to GDP growth from the sectors of output since Quarter 2 (Apr to June) 2016. In Quarter 1 2018, the services industries made the largest contribution to GDP growth, followed by production. Agriculture, the smallest component within the output approach of GDP made no contribution to growth to one decimal place, while construction deducted from GDP growth.

Value Added Tax (VAT) turnover data for October to December and revisions for earlier periods have been incorporated into the compilation of the output approach to GDP estimates. More information can be found in the Revisions to GDP section.

Services

The largest component within the output approach of GDP is the services sector, which increased by 0.3% overall in the first quarter of 2018, unrevised from the second estimate of GDP. Positive growth was recorded within all of the four sub-sectors of the services industries between Quarter 4 2017 and Quarter 1 2018, the previous estimates are shown in brackets:

• business services and finance increased by 0.6% (revised up by 0.2 percentage points from 0.4%)
• government and other services increased by 0.3% (revised up by 0.2 percentage points from 0.1%)
• distribution, hotels and restaurants increased by 0.1% (revised up by 0.2 percentage points from negative 0.1%)
• transport, storage and communication increased by 0.1% (revised down by 0.3 percentage points from 0.2%)

While services continued to grow in the most recent quarter, the quarter on same quarter a year ago growth continues to show weakening in growth in this part of the economy. This is particularly seen in the more domestic consumer-facing industries such as retail trade, food and beverage-serving activities, and arts, entertainment and recreation.

Further detail on the services industries’ lower-level components and estimates for April 2018 can be found in the Index of Services statistical bulletin.

Production

Production output was estimated to have increased by 0.4% between Quarter 4 2017 and Quarter 1 2018, revised down by 0.2 percentage points from the second estimate of GDP. Within production, three of the four sub-sectors increased in this period, the previous estimates are shown in brackets:

• mining and quarrying increased by 2.5% (revised up by 0.3 percentage points from 2.2%)
• water supply industries increased by 1.7% (revised up by 2.7 percentage points from negative 1.0%)
• electricity, gas, steam and air conditioning increased by 1.4% (revised down by 1.1 percentage points from 2.5%)
• manufacturing decreased by 0.1% (revised down by 0.3 percentage points from 0.2%)

The increase in mining and quarrying was due largely to the recovery from the fall in oil and gas production in Quarter 4 2017. The Forties pipeline system (FPS), which closed for several days in the final quarter of 2017, returned to normal operating capacity in Quarter 1 2018.

Strength in the electricity, gas, steam and air conditioning industry can be attributed to below-average temperatures in February and March 2018.

Construction

Construction output was estimated to have decreased by 0.8% in Quarter 1 2018, revised upwards from negative 2.7% in the second estimate of GDP. This is the weakest growth since Quarter 3 (July to Sept) 2012. While there is some evidence of an impact from the bad weather on this industry, our initial analysis shows weakness in construction throughout the quarter, not just the period during the bad weather. More information relating to the revisions to estimates of construction output can be found in the Revisions to GDP section.

Agriculture

Agriculture, the sector that makes up the smallest proportion of total output, decreased by 1.5% into Quarter 1 2018, revised down by 0.1 percentage points from the second estimate of GDP. This revision is due to the inclusion of updated annual data from the Department for Environment, Food and Rural Affairs (Defra).

The expenditure approach to measuring gross domestic product (GDP) increased by 0.2% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018, revised upwards by 0.1 percentage points from the second estimate of GDP. 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.

Figure 4 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures from Quarter 2 2016 to Quarter 1 2018. In the latest quarter, household spending, government spending and net trade all contributed positively to GDP growth, while gross capital formation (which includes GFCF, inventories and valuables) made no contribution to growth to one decimal place.

Household final consumption expenditure (HHFCE)

HHFCE, or household spending, grew by 0.2% between Quarter 4 2017 and Quarter 1 2018, unrevised from the second estimate of GDP.

We continue to see a slowdown in household expenditure through the quarters of 2017 and into 2018. The quarter on same quarter a year ago growth is 1.2%, the lowest rate since Quarter 1 2012. Further information can be found in the Consumer trends release.

General government final consumption expenditure (GGFCE)

GGFCE, or government expenditure, increased by 0.4% between Quarter 4 2017 and Quarter 1 2018, revised downwards slightly from 0.5% in the second estimate of GDP. The largest contributor to the increase in this quarter was spending on public administration.

Gross fixed capital formation (GFCF)

In Quarter 1 2018, GFCF decreased by 1.3% compared with Quarter 4 2017. This is revised downwards from an increase of 0.9% in the second estimate of GDP, this revision in part reflects changes made as part of the annual Blue Book 2018 round, which are discussed in the Revisions to GDP section. The revision was due mainly to the incorporation of updated information from central government departments and improved local government estimates. Including this data led to a downward revision to total GFCF, in particular the other buildings and structures asset.

Business investment, which makes up the largest proportion of total GFCF, decreased by 0.4% in Quarter 1 2018, revised downwards by 0.2 percentage points from the second estimate of GDP. Further details of the asset and sector breakdown of GFCF can be found within the Business investment release.

Trade in goods and services

In Quarter 1 2018, the trade deficit narrowed slightly to £3,174 million in volume terms, from £3,495 million in Quarter 4 2017.

Total trade imports decreased by 0.2% (revised upwards from a decrease of 0.6%) whilst total exports was flat (revised upwards from a decrease of 0.5%), between Quarter 4 2017 and Quarter 1 2018. Decreases in imports in nominal terms were larger than decreases in volume terms, which may be linked to movements in the sterling exchange rate seen in Quarter 1 2018.

Revisions to trade in goods estimates in the quarterly tail are due mostly to the introduction of new trade processing systems. Revisions to trade in services are due mostly to taking on improved net spread earnings data and earlier estimates having been through the supply and use balancing process. These changes are discussed in more detail in the Revisions to GDP section.

Users should be aware that a number of adjustments have been applied to the trade in services component in Quarter 1 and Quarter 2 2017 to help balance the different measurement approaches to GDP. The estimates should be considered accordingly. Please see the Quality and methodology section for further information about the balancing adjustments applied to this dataset.

The trade in goods figures in this release are consistent with the monthly UK trade release published on 11 June 2018.

Nominal gross domestic product (GDP), or GDP not adjusted to take account of inflation, increased by 0.8% between Quarter 4 (Oct to Dec) 2017 and Quarter 1 (Jan to Mar) 2018. Nominal GDP has been revised up by 0.5 percentage points since the second estimate of GDP. Revisions to deflators and adjustments made to balance GDP mean this upward current price revision had a smaller impact on real GDP.

The income approach to measuring GDP adds up all income generated by production in the form of gross operating surplus (profits), compensation of employees (CoE) (income from employment), mixed income (self-employment income) and taxes on products and production less subsidies for the whole economy.

All data quoted in the rest of this section are in current prices seasonally adjusted.

Figure 5 shows the contribution made by income components to current price GDP. In most quarters CoE provides the largest contribution to growth in the income measure of GDP. The CoE component contributed 0.5 percentage points to current price GDP growth in Quarter 1 2018, while gross operating surplus of corporations, and other income contributed 0.3 and 0.2 percentage points respectively. Taxes on products and production less subsidies deducted 0.3 percentage points from GDP growth.

Users should be aware that larger than usual adjustments have been applied to the income dataset to help balance the different measurement approaches to GDP, so income components should be considered in the context of these adjustments. Please see the Quality and methodology section for further information about the balancing adjustments applied to this dataset.

Compensation of employees (CoE)

CoE consists of wages and salaries, and employers’ social contributions. Total CoE showed positive growth of 1.1% (seasonally adjusted) into Quarter 1 2018. This has been revised downwards from 1.6% in the second estimate of GDP. Improvements to methods and data used to calculate certain pensions have led to revisions in the CoE component, further information is available in the Revisions to GDP section.

Taxes on products and production less subsidies

Taxes on products and production less subsidies showed a decrease of 2.3% in Quarter 1 2018, revised upwards by 0.1 percentage points from the second estimate of GDP. The fall in taxes on products and production is due to a decrease in consumer-facing taxes including Value Added Tax (VAT) and duties on alcohol and tobacco.

Gross operating surplus of corporations

Gross operating surplus of corporations saw an increase of 1.5% between Quarter 4 2017 and Quarter 1 2018, this was revised upwards from a decrease of 1.3% in the second estimate of GDP. This category includes the operating surplus, or profits, of private corporations, private non-financial corporations and public corporations. The revision is due to replacing forecasts with actual data and improved quality of survey data due to late survey returns.

Table 3 presents revisions to the main components of gross domestic product (GDP) through the quarterly tail. In this Blue Book 2018-consistent dataset, a number of methodological changes have been made and improved source data have been used, in addition to revisions due to taking on updated source data as would happen in all quarterly national accounts releases.

The main Blue Book 2018-related changes affecting this release are provided in this section.

The use of VAT turnover data

Value Added Tax (VAT) turnover data for October to December and revisions for earlier periods have been incorporated into the compilation of the output approach to measuring GDP. This data source replaces estimates initially gathered from the Monthly Business Survey (MBS) for some industries. VAT has only been used to estimate growth rates, with the overall level of output still derived from the Annual Business Survey and other annual benchmark sources.

The use of the VAT turnover dataset is one of the first major steps towards transforming the data sources used in economic statistics by increasing quality through enhanced use of large externally-collected administrative data in conjunction with Office for National Statistics (ONS) surveys. In this release, the use of VAT turnover data has been increased to cover a number of additional industries including publishing services, programming and broadcasting services, and employment services. More information on the additional industries being included is provided in Section 7 of the Index of Services statistical bulletin.

Further information about the implementation of VAT turnover in national accounts was published in December 2017.

Improvements to construction statistics

A description of the impact of improvements that have been incorporated into construction output, as part of Blue Book 2018, have been published in the Impact of improvements to construction statistics: June 2018 article on 29 June 2018. This article focuses on the improvements implemented to address the bias in early estimates of construction output in addition to usual changes in nominal data and seasonal adjustment.

New developments to UK trade data

Revisions to trade in goods and services components in this release can in part be attributed to the development of new systems for Blue Book and Pink Book 2018. The introduction of these systems improves both the quality and the detail at which we are able to report trade figures. Further detail is available in the article UK trade data impact assessment from new developments, 1997 to 2016.

Gross fixed capital formation other machinery and equipment

Estimates of gross fixed capital formation (GFCF) have been subject to amendment in this Blue Book 2018-consistent dataset. A change was made in UK National Accounts, The Blue Book 2017 to correct the estimation of elements of purchased software. During quality assurance we identified that an additional amendment to other machinery and equipment, and information and communication technology (ICT) equipment was required. Purchased software has been unaffected by this additional amendment. More information is available in the article Latest developments to UK National Accounts and Balance of Payments – changes to be implemented for Blue Book and Pink Book 2018.

Pensions

Improvements have been made to the data and methods used to calculate figures for funded public sector employee pensions in the financial corporations sector, where the employer or “pension manager” is in local government or central government. These changes take effect in this Blue Book 2018-consistent dataset and impact on the Compensation of Employees (CoE) and financial corporations gross operating surplus components of the income approach to measuring GDP.

Net spread earnings

In the national accounts, net spread earnings (NSE) are considered to be the estimate of the production/income associated with this trading. The Bank of England has collected NSE generated from trading in foreign exchange, securities and derivatives using its Profit and Loss (PL) form. The Bank of England has recently emphasised the importance of these data and targeted some of the main reporters to ensure that NSE are correctly reported. This has led to more comprehensive coverage and the Bank has revised some of the previous estimates supplied to Office for National Statistics (ONS). These revised estimates have been incorporated in this Blue Book 2018-consistent dataset for the first time and affect mainly the trade in services component.

Other Blue Book 2018 changes

There are a number of small changes that have been incorporated in this dataset as part of the annual Blue Book process. These include:

• change to the way Motor Vehicle Duty payments are recorded
• reclassification of Rail for London from local government to public corporations
• alignment of UK National Accounts and public sector finance statistics

More information covering the changes being incorporated in the UK National Accounts as part of Blue Book 2018 is available in the article Latest developments to UK National Accounts and Balance of Payments – changes to be implemented for Blue Book and Pink Book 2018.

The estimates quoted in this international comparison section are the latest available estimates at the time of preparation of this statistical bulletin and may have subsequently been revised.

Most of the areas included within our international comparisons saw positive growth in Quarter 1 (Jan to Mar) 2018 with the exception of Japan, which decreased by 0.2%. The strongest growth seen in this quarter was 0.5% by the USA. Germany, Italy and Canada all saw growth of 0.3% (Table 4).

European Union (EU28) economies grew by an average of 0.4% in Quarter 1 2018. This means that average gross domestic product (GDP) growth between countries in the area has been positive for 20 consecutive quarters. G7 countries saw an average of 0.3% growth in Quarter 1. All G7 countries are above pre-economic downturn peaks except for Italy whose GDP remains 5.5% below the pre-downturn peak (Quarter 1 2008).

The area currently showing the biggest recovery over this period is Canada, up 18.6% since the downturn. UK GDP is now 10.4% above the level recorded in Quarter 1 2008.

The data used for these international comparisons are gathered from the Organisation for Economic Co-operation and Development’s website excluding the data from the UK, which is compiled within Office for National Statistics.

Release content

All data in this bulletin are seasonally adjusted estimates. Non-seasonally adjusted data are available within the UK Economic Accounts (UKEA). These data can be downloaded directly from the UKEA dataset and on the UKEA main aggregates dataset table. Data published in the UKEA reflect data as published on 29 June 2018 and will be next updated on 28 September 2018 when the Quarter 2 (Apr to June) 2018 Quarterly national accounts release and UKEA will become consistent.

Economic context

A monthly economic commentary has been published alongside this release, presenting new analysis on the latest economic data.

Business investment

Further details on business investment along with revision triangles and a real time database are available within the datasets of the Business investment release, published on 29 June 2018.

Index of Services

The Index of Services publication was published on 29 June 2018.

Quarterly sector accounts and balance of payments

The Quarterly sector accounts and Balance of payments releases were published on 29 June 2018.

Consumer trends

Estimates of household final consumption expenditure for the UK are also available in the Consumer trends release, published on 29 June 2018.

New model for publishing GDP

An article introducing a new publication model for GDP was published on 27 April 2018. It provided detail of the upcoming changes to the GDP publication model as well as the benefits and trade-offs and the impact on data content.

In summary, for the first time, an estimate of monthly GDP will be published on 10 July 2018 (for the reference period of May) and there will be two quarterly estimates of GDP per quarter rather than the current three; the preliminary estimate of GDP will be deferred by around two weeks and the second estimate of GDP will be brought forward by two weeks to form the new first estimate released six weeks after the end of the quarter. The income and expenditure approaches to GDP will be made available in this new first estimate, two weeks earlier than presently. The first estimate of quarterly GDP (for Quarter 2 (Apr to June) 2018) under this new model will be published on 10 August 2018.

The new monthly estimates of GDP will be presented in a new style bulletin. It will be chart-based, telling the story of the data with a selection of charts alongside minimal text. The bulletin is designed to give an overview of the latest data on the economy. The Index of Services, Index of Production, and Construction bulletins will continue to be released alongside the monthly estimates of GDP. For one month of the quarter the monthly GDP release is published on the same day as the first quarterly estimate of GDP. On this day, the monthly bulletin will be expanded to include extra information included in the quarterly release, such as information on the income and expenditure approaches to measuring GDP. A mock-up version of the new style bulletin will be published on 4 July 2018, alongside the tables that will accompany the release.

Future of the business investment provisional estimate

In the provisional business investment estimate published 25 May 2018, we announced we had reviewed the feasibility of continuing publication of the business investment provisional release in its existing format and described a new business investment publication model to be introduced in August 2018.

That publication model announced in May is being reviewed further to ensure that we continue to provide the same level of data quality in our publication material and so a confirmed publication model will be announced on our website on 4 July 2018 when that review process has concluded.

There are no plans currently to change the format and content of the revised business investment release published alongside the quarterly national accounts, other than the normal evolution of a bulletin.

International Passenger Survey

The International Passenger Survey (IPS) is in the process of transferring data collection from paper forms to tablet computers. Initial analysis of the new data suggests there may be discontinuities arising from the change in mode of collection. These new data will not be used in headline trade or other national accounts estimates until we have produced a consistent time series on the new basis. More information is available in the Overseas travel and tourism release.

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 quarter 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.

Alignment adjustments, found in Table M of the Quarterly national accounts datasets in this release, have a target limit of plus or minus £2,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed. This has been the case for the income approach in Quarter 1 (Jan to Mar) 2017 and Quarter 3 (July to Sept) 2017, and the expenditure approach in Quarter 1 2018. To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the expenditure and income components of GDP as 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. Balancing adjustments are larger than usual in 2017 and Quarter 1 2018.

In the expenditure approach, adjustments have focused on inventories where some caution should be used in the interpretation of quarterly levels. In the income approach, balancing adjustments are larger than usual across a number of components. Balancing adjustments have been applied to the employer’s contributions component of compensation of employees (CoE) throughout 2017 and Quarter 1 2018. This element of CoE has been targeted to preserve the relationship between the wages and salaries component of CoE and labour market indicators. The quarterly and annual growth rates of income and expenditure should be interpreted in the context of these adjustments.

The size and direction of the quarterly alignment adjustments in Quarter 1 2018 indicate that in this quarter the level of expenditure is higher than the level of output and income is lower than the level of output.

Table 5 shows the balancing adjustments applied to the GDP estimates in this publication.