GDP quarterly national accounts, UK: October to December 2019

• UK gross domestic product (GDP) in volume terms was flat in Quarter 4 (Oct to Dec) 2019, unrevised from the first quarterly estimate.

• When compared with the same quarter a year ago, UK GDP increased by 1.1% to Quarter 4 2019, unrevised from the first quarterly estimate.

• The services sector provided a positive contribution to growth in the output approach to GDP in Quarter 4 2019, however, this was offset by a negative contribution from the production sector.

• Government consumption and trade added to growth in the expenditure approach to GDP in Quarter 4 2019, while private consumption and gross capital formation subtracted from growth.

• There were 0.1 percentage point revisions to GDP growth, upwards in Quarter 1 (Jan to Mar) 2019 and downwards in Quarter 2 (Apr to June) 2019, as a result of updated source data.

• UK GDP increased by 1.4% between 2018 and 2019, unrevised from the first quarterly estimate.

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
• 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 first quarterly estimate to around 90% 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 Guide to the UK National Accounts.

There were increased challenges around balancing GDP growth for Quarter 4 (Oct to Dec) 2019, in part because of heightened uncertainty around the impact of the UK’s planned exit from the EU on the activity of businesses. This has been reflected in the adjustments that have been applied to the expenditure estimates. For this reason, we recommend the breakdown of the expenditure approach to GDP is considered in the context of these adjustments. Further information on these adjustments is available in the Quality and methodology section.

Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated), except for income data, which are only available in current prices.

In line with the National Accounts Revisions Policy, revisions are open back to Quarter 1 (Jan to Mar) 2019 as part of this publication.

After EU withdrawal

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.

After the transition period, we will continue to produce our national accounts statistics in line with the UK Statistics Authority’s Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards.

The Withdrawal Agreement outlines a need for UK gross national income (a fundamental component of the national accounts, which includes GDP) statistics to remain in line with those of other EU countries until the EU budgets are finalised for the years in which we were a member. To ensure comparability during this cycle, the national accounts will continue to be produced according to European System of Accounts (ESA) 2010 definitions and standards.

Quarterly Stocks Inquiry temporary expansion

The Quarterly Stocks Survey (formerly Inquiry) is used in the compilation of the changes in inventories component. To address users’ concerns about the sample size of the survey and the potential impact on quality, we temporarily increased the sample size from 5,500 to 9,500 businesses for Quarter 2 (Apr to June) 2019. We have continued to boost the sample since and will be continuing to do so into Quarter 1 (Jan to Mar) 2020.

COVID-19

In response to the developing coronavirus (COVID-19) pandemic, we are working to ensure that we continue to publish economic statistics. For more information please see COVID-19 and the production of statistics. In line with the current government guidelines, we are encouraging ONS staff to work from home and to avoid unnecessary travel and social contact. We have an established infrastructure to help mitigate these changes to ensure we continue to produce economic statistics. We will though continue to review our mitigation as events unfold.

Data in this statistical bulletin and accompanying datasets relate to the Quarter 4 (Oct to Dec) period before reported cases of COVID-19 in the UK.

UK gross domestic product (GDP) was flat in Quarter 4 (Oct to Dec) 2019, unrevised from the first estimate of GDP. Compared with the same quarter a year ago, UK GDP increased by an unrevised 1.1%, continuing the relatively subdued performance of late (Figure 1).

The path of UK GDP growth has been particularly volatile throughout 2019, in part reflecting changes in the timing of activity related to the UK’s original planned exit dates from the EU. The UK economy increased by 1.4% in 2019 after having grown 1.3% in 2018. Growth rates in 2018 and 2019 have been the slowest since the financial crisis of 2008 and 2009.

In line with the National Accounts Revisions Policy, the estimates featured in this statistical bulletin and associated datasets are open to revisions back to Quarter 1 (Jan to Mar) 2019. They include revisions resulting from new survey returns, the incorporation of Value Added Tax (VAT) administrative data up to Quarter 3 (July to Sept) 2019 as well as updates to seasonal adjustment reflecting the latest data. There were small revisions to quarterly real GDP growth in the first two quarters of 2019 (Figure 2).

GDP in Quarter 1 2019 is now estimated to have grown by 0.7%, compared with 0.6% in the previous estimate, whilst GDP in Quarter 2 (Apr to June) 2019 is estimated to have fallen by 0.2% compared with a 0.1% fall in the previous estimate. However, annual GDP growth in 2019 remains unrevised at 1.4%.

Nominal GDP growth has continued to slow of late. It increased by an unrevised 0.1% in the latest quarter, reflecting its weakest rate since Quarter 2 2011. 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 make up GDP. Quarter-on-quarter growth in the implied deflator slowed notably in Quarter 4, increasing by 0.1%. However, compared with the same quarter a year ago, the implied GDP deflator increased by an unrevised 1.8%.

Short-term price changes can be volatile; for a clearer interpretation of underlying trends, and to draw comparisons with other measures of inflation, assessments over the course of a year are advised. Movements in the implied deflator are broadly in line with recent movements in consumer price inflation.

Services output increased by 0.2% in Quarter 4 (Oct to Dec) 2019. Production output fell by 0.7% in Quarter 4 2019, driven by declines in manufacturing, and mining and quarrying. Meanwhile, construction output decreased by 0.1% in the fourth quarter (Figure 3).

Services

Services output increased by 0.2% in Quarter 4 2019, a slight upward revision from the first estimate, reflecting better alignment with government data sources and broad-based revisions across a number of sub-sectors. This slowdown in services sector growth in the fourth quarter was broad-based (Figure 4).

The slowing in the fourth quarter of 2019 is also reflected in the Bank of England Agents’ Summary, which recorded a weakening in business services activity as political uncertainty weighed on activity. The Services PMI (PDF, 182.92KB) also reported a relatively subdued picture in the final month of 2019, reporting that business activity was unchanged in December following a marginal reduction in the previous month.

Production

The volatility throughout the first half of 2019 has been particularly pronounced in production, specifically in manufacturing. This was consistent with activity being brought forward ahead of the UK’s original intended EU departure date, followed by a slowdown in activity in Quarter 2 (Apr to June) exacerbated by partial car plant shutdowns in April. Similar impacts were seen in the manufacturing industry ahead of the second intended EU departure date in October, although to a lesser degree.

Production output fell by 0.7% in Quarter 4 2019, the third consecutive quarter of decline (Figure 5). Similarly, this was also the third consecutive quarter of decline in manufacturing output, which may partially reflect relatively weaker global GDP growth, as global trade tensions have weighed on economic activity. Production is now estimated to have declined by 1.4% in 2019, the first annual contraction in production output since 2013. Manufacturing output fell by 1.7% in 2019, downwardly revised from the initial estimate of a 1.5% decline.

The fall in manufacturing output reflects widespread declines across a number of industries. The manufacture of transport equipment fell sharply in Quarter 4 2019, which partially reflects several factories going ahead with planned shutdowns in November 2019. The decline in transport equipment manufacturing is also evident in recent data from the Society of Motor Manufacturers and Traders (SMMT), which recorded a 6.4% fall in car production in Quarter 4 and a 14.2% decline in 2019 as a whole. The SMMT attributed the decline to a number of factors, including weakened consumer and business confidence at home, slower demand in important overseas markets, a number of significant model production changes and a shift from diesel across Europe.

The often-volatile manufacture of pharmaceutical products also fell in the final quarter of 2019 following a relatively flat Quarter 3.

While there is both external intelligence and evidence from our Quarterly Stocks Survey that there was an increase in stockpiling in the latest quarter, it is difficult to unpick the extent to which this has affected manufacturing output over this period. The Bank of England Agents’ Summary noted how “stockbuilding activity ahead of the October Brexit deadline was lower than it had been ahead of the original March deadline”. The weakness in the manufacturing industry in the three months to December is corroborated by the CBI Industrial Trends Survey, which noted how output volumes fell at the fastest rate since September 2009, reflecting “widespread weakness in the global manufacturing sector and the impact of continued Brexit uncertainty in the run-up to the General Election”.

Mining and quarrying output fell 2.7% in Quarter 4 2019, partially reflecting ongoing shutdown issues at an onshore facility, which are increasingly impacting North Sea gas production.

Construction

Following growth of 0.9% in the third quarter, construction output fell by a downwardly revised 0.1% in Quarter 4 2019.

The decline in construction output in the fourth quarter is corroborated by external evidence, such as the Bank of England Agents’ Summary, which recorded a marginal reduction in construction activity in Quarter 4 as uncertainty caused work in a number of construction industries to be delayed. There were also revisions to quarterly growth in construction in the first three quarters of 2019 as a result of new survey data. Construction output is now estimated to have increased by 2.3% in 2019.

Government consumption and net trade contributed positively to growth in the fourth quarter (Oct to Dec), whilst private consumption is now estimated to have subtracted from growth (Figure 6). Gross capital formation (GCF) also detracted from growth in Quarter 4 2019, although there was some evidence of stockpiling taking place in the latest quarter.

Private consumption

Household consumption was flat in the fourth quarter, a downward revision from the first estimate. This is the first quarter that household consumption has not increased since Quarter 4 2015. The latest Bank of England Agents’ Summary of Business Conditions noted muted growth in consumer demand, stating that “annual growth in retail sales values remained subdued” in the final quarter of 2019. The latest official figures show that retail sales fell 1.0% in Quarter 4 2019.

The GfK Consumer Confidence figures in December found that there was a slight increase in consumer positivity at the end of 2019, though the overall Consumer Confidence Index score remains in negative territory. Increases in spending on housing, water, electricity, gas and other fuels in Quarter 4 2019 were offset by declines in spending in other areas, such as transport, and restaurants and hotels.

There were also downward revisions to household consumption in the first (Jan to Mar) and third (July to Sept) quarters of 2019 caused by actual data replacing forecast data. As such, household consumption is now estimated to have increased by a downwardly revised 1.1% in 2019.

The 2019 growth rate represents a slowing from the 1.6% growth rate in 2018 and is the weakest annual figure since 2011. This easing is most notable in household goods and services, and housing, but can also be seen in miscellaneous, recreation and culture, health, and food and drink (Figure 7).

Government consumption

Government consumption increased by 1.5% in Quarter 4 2019, driven by education and health. Whilst there have been revisions to the quarterly path, primarily reflecting new data replacing earlier forecasts, annual growth for 2019 remains unrevised. Government consumption increased by 3.5% over the year, its largest increase since 2005, driven by central government spending in a number of areas including health, education and defence.

Net trade

Trade imports and exports have been volatile through 2019, in part reflecting the effects of movements of precious metals, which include non-monetary gold. Today’s estimates show that the UK posted a trade surplus of 1.4% of nominal gross domestic product (GDP) in Quarter 4 2019 (Figure 8). This trade surplus is larger than previously estimated.

However, it should be noted that this figure is inclusive of precious metals. When these are excluded, the UK had a trade deficit of 0.6% of nominal GDP in the latest quarter. Users are advised that significant balancing adjustments have been applied to trade figures to produce a balanced estimate of GDP, more detailed information can be found in the UK trade release. When both precious metals and balancing adjustments are removed, the UK had a trade surplus of 0.2%.

Although the latest quarterly import figures do not show strong evidence of stockpiling in Quarter 4 2019, monthly data on UK imports from the EU suggest that activity was being brought forward in preparation for the UK’s intended departure date from the EU on 31 October 2019. In particular, increases in trade in goods imports from the EU in September and October were followed by falls in November and December. This pattern is consistent with that seen in advance of the UK’s original departure date at the end of March 2019, albeit less pronounced.

Gross capital formation

Gross fixed capital formation (GFCF) fell by 1.2% in the fourth quarter of 2019, an upward revision of 0.4 percentage points. The fall was driven by declines in investment in information and communication technology (ICT) equipment, dwellings and transport, though these were partially offset by an increase in investment in other buildings and structures.

Business investment fell 0.5% in the fourth quarter, continuing its recent subdued performance that likely reflects the recent period of increased uncertainty (Figure 9). This represents an upward revision of 0.5 percentage points in Quarter 4 2019 resulting from updated survey data.

Following a fall of 1.5% in 2018, business investment increased by 0.6% in 2019, which is one of the weakest figures since the financial crisis. The varying contributions of each business investment asset to annual growth in 2018 and 2019 have led to changes in the composition of business investment. IPPs and other buildings and structures account for more of business investment than they did in 2017, while ICT equipment, other machinery, and equipment and transport account for less. For more information on business investment please see the latest Business investment in the UK release.

External evidence suggests that investment intentions remained weak in the fourth quarter. For example, the Quarter 4 2019 Decision Maker’s Panel states that “the share of firms reporting that Brexit was an important source of uncertainty for their business remained elevated in November”. However, the more timely Deloitte CFO Survey points out that Brexit is no longer a top concern for CFOs, citing the easing in trade tensions between the United States and China towards the end of 2019 and the reduced political uncertainty following the December 2019 UK General Election amongst reasons for this trend.

Government investment fell by 1.2% in Quarter 4 2019, a downward revision from the first estimate. The fall in government investment in the fourth quarter primarily reflects reduced central government investment. Government investment figures were also downwardly revised in the first two quarters of 2019, reflecting updates to seasonal adjustment. Government investment is now estimated to have increased by 1.4% in 2019.

Alignment 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 of this bulletin. When these adjustments are removed, there is some evidence that stockpiling was taking place in the last quarter of 2019, as there was an increase of £2.4 billion in stocks being held by UK companies in Quarter 4 2019 (Table 2). Earlier in the year, businesses appeared to be running down their stock levels in the second and third quarters of 2019 following a period of pronounced stockpiling in the first quarter ahead of the UK’s original planned exit date from the European Union.

Nominal gross domestic product (GDP) grew by an unrevised 0.1% in Quarter 4 (Oct to Dec) 2019, following an increase of 1.0% in the previous quarter (Figure 10). This is the weakest quarterly figure since Quarter 2 2011. Nominal GDP growth in the second quarter was revised down by 0.1 percentage points whilst growth in the third quarter was upwardly revised by 0.1 percentage points.

Compensation of employees (CoE) increased by 0.6% in the fourth quarter, an easing from the third quarter, driven by wages and salaries. Gross operating surplus (GOS) of corporations fell by 1.3% in the fourth quarter, following an increase of 3.5% in the previous quarter. This was driven by GOS of private non-financial corporations and financial corporations, which fell by 1.5% and 0.5%, respectively. Meanwhile, following two consecutive quarters of decline, other income (which includes mixed income and the operating surplus of the non-corporate sector) grew by 0.7% in Quarter 4 2019.

Within this international comparison, France, Italy and Japan were the only three countries to report negative growth in Quarter 4 (Oct to Dec) 2019. This is the first time France has experienced negative growth since Quarter 2 (Apr to June) 2016; both Italy and Japan recorded negative growth in Quarter 3 (July to Sept) 2018.

The strongest growth seen over the latest quarter was 0.5% in the United States, now growing at the same rate for the third quarter in a row. European Union (EU28) economies grew by an average of 0.1% in Quarter 4 2019, which is the weakest growth experienced since Quarter 1 (Jan to Mar) 2013.

G7 countries experienced, on average, no growth in Quarter 4 2019. However, most G7 countries are above their pre-economic downturn peaks, the exception being Italy where gross domestic product (GDP) remains 5% below the pre-downturn peak (Quarter 1 2008). The United States is still showing the biggest recovery over this period, up to 22.6% since the downturn. Canada is also still showing the second-largest recovery, up to 21.2% over the period.

The estimates quoted in this international comparison section are the latest available estimates at the time of preparation of this statistical bulletin and may subsequently have been revised. The data are gathered from the Organisation for Economic Co-operation and Development’s website excluding the data from the UK, which is compiled by the 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 31 March 2020 and are consistent with the data in this release.

A number of other economic indicators were published on 31 March 2020, these include:

• Business investment
• Quarterly sector accounts
• Balance of payments
• Consumer trends

Monthly GDP

On 11 March 2020, estimates of Monthly GDP were published for January 2020. The Index of Services, Index of Production and Construction output in Great Britain publications covering the period up to January 2020 are also available. The next monthly GDP release (on 9 April 2020) will include data consistent with the revisions seen in this release.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Gross domestic product (GDP) QMI.

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 information

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 “Accuracy and reliability” 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 because of 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 data tables 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 in Quarter 4 (Oct to Dec) 2019 for expenditure.

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 because of a higher level of forecast content.

The balancing adjustments applied in this quarter are shown in Table 4, the resulting series should be considered accordingly.

We have applied larger than usual adjustments to the expenditure approach in Quarter 4 (Oct to Dec) 2019 in part after heightened uncertainty around the impact of the UK’s planned exit from the EU on the timing of activity of businesses.