1. Main points

  • UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.4% between Quarter 3 (July to Sept) and Quarter 4 (Oct to Dec) 2017, unrevised from the second estimate of GDP.

  • Growth in the latest quarter was driven by professional, scientific, administration and support activities within the services sector.

  • GDP was estimated to have increased by 1.8% between 2016 and 2017, an upward revision of 0.1 percentage points from the second estimate; this was slightly lower than the 1.9% growth seen between 2015 and 2016.

  • Household spending grew by 1.7% between 2016 and 2017, its slowest rate of annual growth since 2011, in part reflecting the increased prices faced by consumers.

  • This release incorporates additional Value Added Tax (VAT) turnover data in the calculation of the output approach to measuring GDP for the first three quarters of 2017.

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2. Things you need to know about this release

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.

Revisions

In line with the National Accounts Revisions Policy the time series open for revision in this release is Quarter 1 (Jan to Mar) 2017 to Quarter 4 (Oct to Dec) 2017.

When processing data for an incomplete year, some component data are forecast forwards to provide the best approach to forecasting and seasonal adjustment. When actual data for the full year are available it is not unusual for the quarterly path of component series to be subject to revision.

Release content

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

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3. The 2017 quarterly picture

UK gross domestic product (GDP) increased by 0.4% between Quarter 3 (July to Sept) 2017 and Quarter 4 (Oct to Dec) 2017.

Table 1 shows GDP and the headline economic indicators from 2015 onwards.

There are revisions to the 2017 quarterly path of 0.1 percentage points in two quarters of 2017 when compared with the second estimate of GDP published on 22 February 2018; an upward revision in Quarter 1 (Jan to Mar) and a downward revision in Quarter 2 (Apr to June). These revisions reflect the improvement in data content since the second estimate of GDP. The current and previous estimates of growth are illustrated in Figure 1.

Figure 2 shows the seasonally adjusted level of GDP along with quarterly growths. The growth between Quarter 3 2017 and Quarter 4 2017 is the 20th consecutive quarterly increase and continues the UK’s pattern of growth since Quarter 1 2013.

Growth in UK GDP is now 10.6% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 2013.

When looking at UK GDP growth in volume terms in the current quarter (Quarter 4 2017) compared with the same quarter a year ago (Quarter 4 2016), GDP increased by 1.4%. This is unrevised from the second estimate of GDP.

Implied deflator

The GDP implied deflator at market prices for Quarter 4 2017 is 1.6% above the same quarter of 2016. 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 directly in the compilation of real GDP.

GDP per head

In Quarter 4 2017, GDP per head grew by 0.2% compared with Quarter 3 2017. GDP per head is now 3.0% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed this peak in Quarter 2 2015 (Figure 3).

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 22 June 2017 and the population projections used are those published on 26 October 2017.

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4. Services contribute most to the output approach of GDP in Quarter 4 2017

The output approach to measuring gross domestic product (GDP) involves estimating production activity within the UK economy. It increased by 0.4% between Quarter 3 (July to Sept) 2017 and Quarter 4 (Oct to Dec) 2017, unrevised from the second estimate of GDP.

VAT turnover data

Value Added Tax (VAT) turnover data for July to September and revisions for earlier periods have been incorporated into the compilation of these estimates. This data source replaces estimates initially gathered from the Monthly Business Survey (MBS) for some industries. It 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. There are some revisions to estimates of production and construction as a result of this change in data source in this release. Further information about the implementation of VAT turnover in national accounts was published in December 2017.

Services

The largest component within the output approach of GDP is the services sector, which increased by 0.4% overall between Quarter 3 2017 and Quarter 4 2017. This was revised downwards by 0.2 percentage points from the second estimate of GDP. Positive growth was recorded within three of the four sub-sectors of the services industries between Quarter 3 2017 and Quarter 4 2017. There were revisions since the second estimate of GDP in three of the four sub-sectors, the previous values are shown in brackets:

  • transport, storage and communications increased by 1.1% (unrevised)
  • business services and finance increased by 0.6% (0.9%)
  • government and other services increased by 0.1% (0.2%)
  • distribution, hotels and restaurants decreased by 0.1% (negative 0.2%)

An upward revision in Quarter 1 and downward revision in Quarter 2 2017 to total services are due to late data returns from both VAT turnover and MBS. The downward revision in Quarter 3 2017 to total services is due predominantly to VAT turnover data replacing MBS estimates for selected industries. The revisions in Quarter 4 2017 are due mainly to improved data content in the MBS and other data sources.

Data for the retail industry are broadly comparable with Retail sales in Great Britain: December 2017, published on 16 February 2018, but as the two series operate under different revisions policies, there can be timing differences in the updating of the two series. Therefore, inconsistencies between the two series are not unusual but tend to be small. There are also conceptual and coverage differences between retail sales and retail output, which can lead to apparent inconsistencies.

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

Production

Production output was estimated to have increased by 0.4% between Quarter 3 2017 and Quarter 4 2017, revised down by 0.1 percentage points from the second estimate of GDP. Within production, only one of the four sub-sectors increased in this period, the previous estimates are shown in brackets:

  • manufacturing increased by 1.3% (unrevised)
  • water supply industries decreased by 0.4% (0.0%)
  • electricity, gas, steam and air conditioning decreased by 0.4% (negative 0.5%)
  • mining and quarrying decreased by 4.9% (negative 4.7%)

The decrease in mining and quarrying was due partly to the shut-down of the Forties pipeline system (FPS) for a large part of December 2017.

As with services, revisions to the first two quarters of the year are due to late data returns from both VAT turnover and MBS. The revisions in Quarter 3 2017 are due predominantly to VAT turnover data replacing MBS estimates for selected industries. The revisions in Quarter 4 2017 are due mainly to improved data content in the MBS and other data sources.

Construction

Construction output was estimated to have decreased by 0.1% in the fourth quarter of 2017, revised upwards from negative 0.7% in the second estimate of GDP.

With the inclusion of VAT turnover data, there have been upward revisions to construction in Quarter 1, Quarter 2 and Quarter 3 2017. This has resulted in the negative growth reported for Quarter 3 2017 in the second estimate of GDP now showing positive growth of 0.4%.

The annual growth in 2017 of 5.7% is revised upwards from the 5.1% growth reported in the second estimate of GDP and is stronger than the 3.9% growth seen in 2016. This strength reflects strong growth in construction output in late 2016 and the first quarter of 2017.

Agriculture

Agriculture, the sector that makes up the smallest proportion of total output, decreased by 1.0% into Quarter 4 2017. This was revised downwards from a decrease of 0.9% in the second estimate of GDP due to the inclusion of updated source data.

Figure 4 shows the contributions to GDP growth from the sectors of output since 2016. In all periods, the services industries contributed most to GDP growth, followed by total production.

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5. Slowdown in growth of household spending through 2017

The expenditure approach to measuring gross domestic product (GDP) increased by 0.4% between Quarter 3 (July to Sept) 2017 and Quarter 4 (Oct to Dec) 2017. 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.

Household final consumption expenditure (HHFCE)

HHFCE, or household spending, grew by 0.3% between Quarter 3 2017 and Quarter 4 2017, unrevised from the second estimate of GDP. There has been a slower rate of growth in all quarters of 2017 when compared with the corresponding quarter in 2016. When comparing Quarter 4 2017 with the same quarter a year ago, household spending grew by 1.2%.

The annual rate of growth for 2017 is 1.7%, revised downwards by 0.1 percentage points since the second estimate of GDP. This is the lowest rate of annual growth in household spending since 2011, when growth in household spending decreased by 1.0%.

This slower rate of annual and quarterly growths is broad-based across the categories of household spending and can, in part, be explained by the rise in prices faced by consumers.

Further information about household spending can be found in the Consumer trends release.

General government final consumption expenditure (GGFCE)

GGFCE increased by 0.4% between Quarter 3 and Quarter 4 2017, revised down from 0.6% in the second estimate of GDP. The largest contributor to this increase was healthcare, followed by spending on education and public administration.

Revisions to other quarters in 2017 are driven by social protection and public administration, where up-to-date source data has replaced estimates.

Gross capital formation (GCF)

In Quarter 4 2017, gross fixed capital formation (GFCF) increased by 1.1% compared with Quarter 3 2017, unrevised from the second estimate of GDP.

Business investment, which makes up the largest proportion of total GFCF, increased by 0.3% in Quarter 4 2017, revised upwards by 0.3 percentage points from the second estimate of GDP. Despite this slow rate of growth in the latest quarter, the 2017 annual rate of growth in business investment was 2.4%, following a decrease of 0.5% in 2016.

The general government and private dwelling sectors of GFCF contributed most to the GFCF increase in Quarter 4 2017, growing by 4.6% and 0.8% respectively (revised downwards from the 5.6% and 1.4% reported in the second estimate of GDP).

Further details of the asset and sector breakdown of GFCF can be found within the Business investment release.

The other components of GCF are change in inventories and acquisition less disposals of valuables. The change in inventories component decreased by £0.8 billion on an aligned basis, while the acquisition less disposals of valuables component increased by £1.1 billion between Quarter 3 and Quarter 4 2017.

Trade in goods and services

In Quarter 4 2017, the trade deficit widened to £9,375 million in volume terms, from £7,617 million in Quarter 3 2017. There have been revisions to both trade in goods and trade in services components since the second estimate of GDP due to improved data content from both survey and administrative data sources. This has led to the trade deficit being revised downwards from £12,237 million in the second estimate of GDP.

Total trade imports increased by 0.4% whilst total exports decreased by 0.9%, between Quarter 3 and Quarter 4 2017. This was due in part to increases in the price of fuels that were imported combined with decreases in the volumes of fuels exported.

Despite the widening of the trade deficit in the latest quarter, looking at 2017 as a whole the trade deficit has narrowed, from £46,912 million in 2016 to £35,488 million in 2017.

These figures are consistent with the monthly UK trade release published on 9 March 2018.

Figure 5 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures from Quarter 1 (Jan to Mar) 2016 to Quarter 4 2017. In the latest quarter, the largest contribution to growth was from GCF at 0.5 percentage points, followed by household spending at 0.2 percentage points.

The GCF contribution was driven by acquisitions less disposals of valuables, in particular the trade in non-monetary gold. However, this was offset by the negative contribution from net trade of 0.4 percentage points, which also includes non-monetary gold, therefore making this transaction GDP-neutral. You can find out more about the impact of non-monetary gold in the article A brief explanation of non-monetary gold in national accounts. The contribution of GFCF was 0.2 percentage points.

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6. The income approach to GDP in current prices increased by 0.7% in Quarter 4 2017

Nominal gross domestic product (GDP), or GDP not adjusted to take account of inflation, increased by 0.7% between Quarter 3 (July to Sept) 2017 and Quarter 4 (Oct to Dec) 2017, unrevised from the second estimate of 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 (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.

Compensation of employees (CoE)

CoE consists of wages and salaries, and employers’ social contributions. Total CoE showed positive growth of 0.7% (seasonally adjusted) into Quarter 4 2017, revised upwards by 0.2 percentage points from the second estimate of GDP. This continues the pattern of a slight slowdown in growth through 2017, where growth was 1.0% in the first two quarters of the year and 0.8% in Quarter 3.

There was growth across the wages and salaries component throughout the quarters of 2017, but there was a fall in employers’ social contributions over the year.

Taxes on products and production less subsidies

Taxes on products and production less subsidies showed a decrease of 0.6% in Quarter 4 2017, revised downwards from a decrease of 0.3% in the second estimate of GDP. Revisions to this component reflect outturn data replacing budgetary forecasts.

Other income

There was an increase in other income of 1.2% in Quarter 4 2017. This category includes mixed income (mostly self-employment income) and the operating surplus of the non-corporate sector. This was revised upwards by 0.3 percentage points from the second estimate of GDP, as a result of data replacing forecasts.

Gross operating surplus of corporations

Gross operating surplus of corporations saw positive growth in Quarter 4 2017 of 0.9%, revised downwards from 1.3% in the second estimate of GDP. This includes the operating surplus, or profits, of private corporations, private non-financial corporations and public corporations. The downward revision in this component in part reflects the smaller alignment adjustment (applied to the private non-financial corporations component) needed to achieve a balanced GDP dataset. Further information on this can be found in the quality and methodology section.

Figure 6 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, this component contributed 0.3 percentage points to current price GDP growth in Quarter 4 2017.

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7. The 2017 annual picture

UK gross domestic product (GDP) increased by 1.8% between 2016 and 2017, revised upwards by 0.1 percentage points from the second estimate of GDP published on 22 February 2018.

The 2017 annual picture shows a slight slowdown in growth when compared with the 1.9% growth between 2015 and 2016, and is the slowest rate of annual growth since 2012, when growth was 1.5%. This reflects the slowing down of growth seen throughout 2017 in the quarterly path.

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 this.

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.

Output

Despite increases in contributions to growth in production and construction, there was a notable fall in contribution from the services industries, from 2.0 percentage points in 2016 to 1.2 percentage points in 2017. The slowdown was broad-based across the sub-sectors of services, but was notable in the consumer-focused industries.

Expenditure

In 2016, household spending contributed 1.9 percentage points to annual growth in GDP and in 2017 that fell to a 1.1 percentage points contribution. This slowdown was broad-based across most of the categories of household expenditure, consistent with rising prices experienced by households.

A small slowdown in contribution to growth between 2016 and 2017 was also seen in general government final consumption expenditure (GGFCE).

Conversely, gross capital formation (GCF) and net trade increased their contribution to annual GDP growth between 2016 and 2017.

Contributions from gross fixed capital formation (GFCF) increased from 0.3 percentage points in 2016 to 0.7 percentage points in 2017, with growth across a number of sectors and assets. Business investment’s contribution also increased from being flat in 2016 to 0.2 percentage points in 2017.

The contribution of net trade to GDP growth increased, with the contribution of exports growing from 0.6 percentage points in 2016 to 1.6 percentage points in 2017 and the contribution of imports slowing down from 1.4 percentage points in 2016 to 1.0 percentage points in 2017. This in part reflects rising fuel prices in imports throughout 2017, along with increased exports of machinery and transport equipment.

Income

Compensation of employees, the largest component of income-based GDP, contributed 2.0 percentage points to annual GDP growth in both 2016 and 2017. There was continued annual growth in both the wages and salaries, and employers’ social contributions components in 2017, with a slowdown through the quarters of 2017 in employers’ social contributions.

Both other income, and taxes and subsidies components of income also saw a decrease in their contribution to annual growth in GDP in 2016 and 2017, while gross operating surplus of corporations increased its contribution to GDP growth over this period.

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8. How is the UK economy performing compared with other European and non-European countries?

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.

All of the areas included within our international comparisons witnessed positive growth in all quarters throughout 2017 (Table 3). The strongest growth seen in the latest quarter, Quarter 4 (Oct to Dec) 2017, was 0.6% by 5 of the 10 areas that form this analysis. Those areas were EU28, EA19, France, Germany and the USA. The weakest growth in the latest quarter was in Italy at 0.3%.

European Union (EU28) economies grew by an average of 0.6% in Quarter 4 2017. This means that average gross domestic product (GDP) growth between countries in the area has been positive for 19 consecutive quarters. G7 countries saw an average of 0.5% growth in Quarter 4. All G7 countries are above pre-economic downturn peaks except for Italy whose GDP remains 5.8% below the pre-downturn peak, Quarter 1 (Jan to Mar) 2008.

The area currently showing the biggest recovery over this period is Canada, up 18.1% since the downturn. UK GDP is now 10.6% 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.

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10. Are there any upcoming changes?

Blue Book 2018

The next Quarterly national accounts release will be consistent with estimates compiled as part of the UK National Accounts, The Blue Book 2018. We have published an article detailing the scope of the UK National Accounts Blue Book 2018 publication.

New model for publishing GDP

We published a response to the consultation on proposed changes to the GDP release schedule on 19 October 2017. Further details on this response are available on our Consultation Hub, and an article giving additional detail about the expected impact of the new model and the range of products that will be made available as part of it will be published alongside the Preliminary estimate of GDP on 27 April 2018.

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.

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11. Quality and methodology

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 and expenditure approaches in Quarter 2 (Apr to June) 2017. 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. The quarterly and annual growth rates should be interpreted in the context of these adjustments.

The size and direction of the quarterly alignment adjustments in Quarter 4 2017 indicate that in this quarter the levels of expenditure and income are lower than the level of output.

Table 4 shows the balancing adjustments applied to the GDP estimates in this publication.

Further information

We are committed to ensuring all information provided is kept strictly confidential and will only be used for statistical purposes. Further details regarding confidentiality can be found in the respondent charters for businesses and households.

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Contact details for this Statistical bulletin

Charlotte Richards
gdp@ons.gsi.gov.uk
Telephone: +44 (0)1633 455284