1. Main points

  • UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.7% between Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2016, unrevised from the second estimate of GDP published on 22 February 2017; more generally, the latest GDP data for 2016 are little changed from the second estimate of GDP.
  • UK GDP growth in Quarter 4 2016 saw a continuation of strong consumer spending and strong output in consumer-focused industries; there has been a slowdown within business investment which fell by 0.9% driven by falls within the other buildings and structures and transport equipment assets, although this is a slightly improved picture from the second estimate of GDP, being revised up by 0.1 percentage points.
  • UK GDP growth between 2015 and 2016 is estimated to have increased by 1.8%; this is unrevised from the second estimate of GDP – further details are provided in the section titled “What is the 2016 picture?”
  • UK GDP growth in Quarter 3 2016 has been revised down by 0.1 percentage points to 0.5% from the previous estimate, further details are provided in the section titled “What is driving the revision to Quarter 3 (July to Sept) 2016?”
  • GDP in current prices increased by 1.5% between Quarter 3 2016 and Quarter 4 2016 and has been revised up by 0.1 percentage points from the second estimate of GDP.
  • GDP per head in volume terms was estimated to have increased by 0.5% between Quarter 3 2016 and Quarter 4 2016 and is unrevised from the previous estimate.
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2. Things you need to know about this release

Estimates within this release

In line with National Accounts Revisions Policy, the earliest period open for revision in this release is Quarter 1 (Jan to Mar) 2016.

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.

All data 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.

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 measure of gross domestic product (GDP) has risen 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.

Corrections to be aware of

We informed users on 25 November 2016 that, following a quality review, a processing error had been identified in the compilation of the estimates for the rail transport industry (49.1-2), which affects the period Quarter 1 (Jan to Mar) 1997 to Quarter 2 (Apr to June) 2016. In line with the National Accounts Revision Policy, this error has been corrected in the Index of Services and Quarterly National Accounts published on 23 December 2016 for data from Quarter 1 2015. Data prior to 2015 will be corrected when next open for revision with Blue Book 2017 consistent releases due for publication on 29 September 2017. The average impact over this period on quarter-on-quarter Index of Services and GDP growth is 0.00%.

Following a quality review it has been identified that the methodology used to estimate elements of purchased software within gross fixed capital formation (GFCF) has led to some double counting from 1997 onwards. When this issue is resolved in Blue Book 2017 it will reduce the level of GFCF across the period by around 1.1% per year. The average impact on quarter-on-quarter GFCF growth is negative 0.02% and the average impact on quarter-on-quarter GDP growth is 0.00%.

Understanding gross domestic product

GDP growth is the main indicator of economic performance. There are 3 approaches used to measure GDP; the output approach, the expenditure approach and the income approach. Further information on all 3 approaches to measuring GDP can be found in the short guide to national accounts.

Reliability

Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. We currently provide an analysis of past revisions in the GDP and other statistical bulletins that present time series.

Our revisions to economic statistics page brings together our work on revisions analysis, linking to articles and revisions policies.

Revisions to data provide one indication of the reliability of main indicators. Revisions triangles are published on our website for headline GDP, UK gross value added, the GDP deflator and the expenditure and income components of GDP.

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3. UK GDP continues to grow in Quarter 4 (Oct to Dec) 2016

Headline GDP components and GDP per head

As seen in Figure 1, between Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2016 UK GDP grew by 0.7%, which is the 16th consecutive quarterly increase and continues the UK’s steady period of growth since Quarter 1 (Jan to Mar) 2013.

Output approach

The output approach of gross domestic product (GDP) increased by 0.7% between Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2016 and is unrevised from the second estimate of GDP published on 22 February 2017.

Growth in UK GDP was broad-based but once again the services industries contributed by far the most to the headline growth rate. Within production, 3 of the 4 components increased, which resulted in overall positive growth in total production, while construction also showed an increase of 1.0% between Quarter 3 2016 and Quarter 4 2016. All of the 4 components within the services industries showed an increase between Quarter 3 2016 and Quarter 4 2016.

Within the production sub-industries, output from mining and quarrying (including oil and gas extraction) decreased by 6.9%; manufacturing (the largest component of production) increased by 1.2% and electricity, gas, steam and air conditioning supply industries increased by 4.0%. Water supply and sewerage increased by 0.9%.

Between Quarter 3 2016 and Quarter 4 2016 the services industries increased by 0.8%, maintaining the growth in the previous estimate and marking the 16th consecutive quarter of positive growth. The main drivers of the growth were wholesale trade except of motor vehicles and motor cycles, retail trade except motor vehicles and motor cycles. This follows a 0.9% increase in Quarter 3 2016.

Further detail on the services industries’ lower level components can be found in the Index of Services statistical bulletin published on 31 March 2017.

Expenditure approach

The expenditure approach of GDP increased by 0.6% between Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2016 and is revised down 0.1 percentage points from the second estimate of GDP published on 22 February 2017.

As has been the case in recent periods, household final consumption expenditure (HHFCE) was a main driver and contributor to GDP growth in all quarters of 2016. Household spending grew by 0.7% in Quarter 4 2016, which was higher than the average quarter-on-quarter growth (0.6%) seen since Quarter 1 (Jan to Mar) 2013 when the economy started growing steadily. This is unrevised from the previous estimate published on 22 February 2017. The growth in Quarter 4 2016 is broad-based with many types of consumption showing positive growth, with the largest of positive £0.9 billion within the housing, water, electricity, gas and other fuels category.

Although national UK household expenditure growth remains unchanged at 0.7% in Quarter 4 2016, there have been downward revisions to the levels of all 4 quarters of 2016, resulting in downward growth revisions in Quarter 1 2016 and Quarter 3 2016, which have been revised down by 0.2 and 0.1 percentage points respectively. The primary driver of the revisions is the Miscellaneous category. Revisions are driven by Insurance, mainly caused by late responses for Life Insurance data from the financial inquiries survey. Revisions to Quarter 4 2016 are due to real data from the survey replacing a forecast. The service charge associated with provision of insurance to overseas residents is recorded as an export of a service within the trade in services component.

The insurance data feed into the income measure of GDP within the gross operating surplus of financial corporations component (where they form part of the profits of the sector). Quarterly estimates are taken from our MQ5: Investment by Insurance Companies, Pension Funds and Trusts bulletin, and benchmarked to annual regulatory data.

The impact on insurance within the output measure is not wholly reflected in the same way as the expenditure and income measures as direct volume measures on the numbers of insurance policies are used based on data from the Associated of British Insurers.

An article within the Quarterly Sector Accounts bulletin published on 31 March 2017 details how the insurance and pensions data affect GDP.

There has been a slowdown in gross fixed capital formation (GFCF) to 0.5% growth in 2016 following relative strength in the past few years. Within GFCF, business investment fell by 0.9% in the latest quarter, driven by falls within the other buildings and structures and transport equipment assets. This has been revised up 0.1 percentage points from the second estimate published on 22 February 2017. Further details regarding the business investment data can be found within the Business investment release published on 31 March 2017.

Income approach

The income approach of GDP increased by 0.7% in chained volume measures (1.5% in current prices seasonally adjusted) between Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2016. In chained volume measures this is unrevised from the second estimate of GDP published on 22 February 2017, while in current prices this is revised up by 0.1 percentage points.

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

Within the income measure of GDP, all 4 components showed growth between Quarter 3 2016 and Quarter 4 2016, with taxes on products and production less subsidies showing the largest growth of 4.8% mainly due to a rise in Value Added Tax and other taxes on products which has been partially offset by an increase in subsidies.

Compensation of employees, which includes wages and salaries and pensions, showed positive growth of 0.4% in Quarter 4 2016. There was positive growth within the wages and salaries data driven mainly by a rise in average weekly earnings in the private sector, which has been partially offset by weaker growth within the Employer’s Social Contributions data in the latest quarter.

Compensation of employees has been revised upward by 0.3 percentage points from the second estimate of GDP. There were two significant revisions in the data. For wages and salaries, local and central government revised their levels up from Quarter 2 (Apr to June) 2016 onwards. For employer’s contributions, there has been a £1 billion downward revision to funded pensions schemes in Quarter 3 2016; as a result the rate of growth from Quarter 3 2016 into Quarter 4 2016 has increased despite an actual downward revision in the Quarter 4 2016 levels (negative £400 million). This data was sourced from the financial inquiries survey.

In Quarter 4 2016, gross operating surplus of corporations, the profits of companies, shows positive growth of 2.7%, revised down by 1.8 percentage points from the second estimate of GDP. The main driver of this downward revision is the replacement of quite strong forecast data for insurance companies with survey data that showed weaker investment returns. The MQ5: Investment by Insurance Companies, Pension Funds and Trusts bulletin showed that insurance companies have disinvested in large parts of 2016 particularly in overseas securities, the reduction in returns could be linked to this disinvestment.

GDP per head for Quarter 4 (Oct to Dec) 2016

In Quarter 4 (Oct to Dec) 2016, gross domestic product (GDP) per head increased by 0.5%, compared with Quarter 3 (July to Sept) 2016 and is unrevised from the second estimate of GDP published on 22 February 2017. GDP per head is now 1.7% above the GDP pre-downturn peak in Quarter 1 (Jan to Mar) 2008, having surpassed it in Quarter 4 2015 (Figure 2).

Between 2015 and 2016, GDP per head increased by 1.1% compared with growth of 1.4% between 2014 and 2015 and is unrevised from the previous estimate.

GDP per head is calculated by dividing GDP in chained volume measures by the latest population estimates and projections. The population estimates used in this release are those published on 23 June 2016 and the population projections used are those published on 29 October 2015.

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4. What are the main contributors from the output, income and expenditure approaches to GDP growth?

The largest component within the output approach of gross domestic product (GDP) is the services industry with a weight of 78.8%.

Figure 3 shows the services industry has dominated GDP growth in Quarter 4 (Oct to Dec) 2016 and has contributed 0.6 percentage points to the 0.7% UK GDP quarterly growth. Within services, the largest contributor to growth was distribution, hotels and catering.

Figure 4 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures. For Quarter 4 2016, the largest positive contribution to GDP came from net trade, which contributed 1.7 percentage points. The negative contributions to GDP came from gross capital formation, which contributed a negative 1.6 percentage points. The contributions from net trade and gross capital formation are mainly offsetting as data for non-monetary gold – the main driver behind the movements in net trade (trade in goods) and gross capital formation (acquisitions less disposals of valuables component) – feeds into both components but offset each other, in effect making non-monetary gold GDP neutral. This article provides further details on the treatment of non-monetary gold within national accounts.

In the latest quarter, as in many recent periods, household final consumption expenditure (the largest component within expenditure (60%)) has continued to make a positive contribution to GDP; 0.4 percentage points in Quarter 4 2016, unrevised from the second estimate of GDP published on 22 February 2017.

Figure 5 shows the contribution made by income components to current price GDP. In Quarter 4 2016, the largest positive contributions to GDP came from gross operating surplus of corporations and taxes on products and production less subsidies, both of which contributed 0.6 percentage points.

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5. What is driving the revision to Quarter 3 (July to Sept) 2016?

UK gross domestic product (GDP) in Quarter 3 (July to Sept) 2016 is 0.5%, revised down by 0.1 percentage points from the second estimate of GDP published on 22 February 2017.

Both the expenditure and income measures of GDP saw similar downward revisions (£0.7 billion) in Quarter 3 2016 and contributed to the overall downward revision to UK GDP in Quarter 3 2016.

Within the expenditure measure, exports and imports of trade in services were both revised up, by £0.6 billion and £1.6 billion respectively in Quarter 3 2016 and net trade contributed a negative 0.2 percentage points to the revision to Quarter 3 2016. The larger upward revision to imports compared with exports had a negative effect on GDP and was the main driver of the downward revision. The revisions to exports of services are mainly within other business services and due to late returns replacing estimated data. For imports of services the larger upward revision is due to late data returns replacing estimates within other business services, travel and intellectual property. There has been the inclusion of further trade in services data since the publication of UK Trade on 10 March 2017.

Within the income measure, compensation of employees saw a downward revision of £0.6 billion in Quarter 3 2016 due to late data from financial services surveys, particularly to funded pension schemes. This contributed a negative 0.2 percentage points to the revision to Quarter 3 2016 in current prices seasonally adjusted.

Gross operating surplus of corporations, the profits of companies, contributed a negative 0.1 percentage points to the revision to UK GDP in Quarter 3 2016 in current prices seasonally adjusted. The main driver of this downward revision is due to late returns of survey data from life insurance companies. This was partly offset by an increase in investment income in Quarter 2 (Apr to June) 2016.

The larger upward revision to imports of trade in services combined with the downward revision to compensation of employees and gross operating surplus of corporations almost entirely drove the downward revision of 0.1 percentage points to headline UK GDP in Quarter 3 2016.

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6. What is the 2016 picture?

Growth in 2016 has increased by 1.8% compared with 2015 and is unrevised from the second estimate of gross domestic product (GDP) published on 22 February 2017. Growth in Quarter 1 (Jan to Mar) 2016 showed the slowest positive growth in 2016 of 0.2% but GDP growth then became steady and consistent throughout the rest of 2016 (see Table 1).

Figure 6 shows quarterly revisions between latest and previously published estimates of gross domestic product (GDP). Quarter 1 2016 is the first quarter open for revision in this release.

The latest estimates present a more divergent picture between the different measurement approaches for GDP than in recent years; expenditure, income, and output (Table L in the quarterly national accounts GDP data tables details the annual growth rates for the 3 separate approaches).

In particular, the expenditure approach is weaker in 2016 compared with the income and output approaches, in part due to weakness in the changes in inventories and trade in goods components.

After a period of stock-building during 2014 and 2015 where levels of inventories were £16.6 billion and £12.4 billion respectively, there has been a slowdown during 2016 to a level of £2.6 billion. All data quoted are in chained volume measures seasonally adjusted.

Between 2015 and 2016, exports of goods fell and imports of goods increased causing a widening of the trade deficit. Exports of goods during 2016 have seen a slowdown compared with 2015, falling by 0.9% during 2016. The negative growth in 2016 was mainly driven by falls in exports of chemicals and fuels although partially offset by increases within cars and aircraft. Imports of goods have been increasing consistently year-on-year since 2010, with 2016 increasing by 3.4% compared with 2015. The increase in 2016 is primarily due to an increase in imports of cars, non-monetary gold and aircraft.

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7. 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 published by the respective bodies (referenced) at the time of preparation of this statistical bulletin and may subsequently have been revised.

During Quarter 4 (Oct to Dec) 2016, the UK experienced the strongest rate of growth among European groupings and G7 countries. In Quarter 4 2016, the UK experienced 0.2 percentage points higher growth than the USA, who experienced a slowdown in growth from 0.9% in Quarter 3 (July to Sept) 2016 to 0.5% in Quarter 4 2016.

All of the areas included within our international comparisons saw positive growth in Quarter 4 2016 when compared with Quarter 3 2016. France and Germany experienced growth of 0.4%, whilst Italy and Japan experienced growth of 0.2% and 0.3% respectively (Table 2). The European Union (EU28) grew by 0.5% (Figure 7) marking 15 consecutive quarters of positive growth and in the same period, the group of Euro Area countries (EA19) grew by 0.4%.

All G7 countries are currently above pre-economic downturn peaks except for Italy whose GDP remains 7.4% below the pre-downturn peak (Quarter 1 (Jan to Mar) 2008). Canada shows signs of the strongest recovery at 14.4%. The UK has the third strongest rate at 8.5% behind that of the USA at a recovery rate of 12.9%, whilst Germany and France have rates of 7.8% and 4.5% respectively.

Information on the estimates for the USA can be found on the Bureau of Economic Analysis website; information on the estimates for Japan can be found on the Japanese Cabinet Office website. More detailed information for the G7 and the EU countries can be found on the Organisation for Economic Co-operation and Development’s website and Eurostat website, respectively.

Figure 8 shows GDP for the USA, Germany, France, Italy, UK, Japan and Canada all indexed to Quarter 1 2008 (the pre-downturn peak in the UK) to allow comparison of each since that period.

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9. What has changed in this publication?

This is the first Quarterly National Accounts bulletin released as part of the new economic theme days. As such this bulletin now follows a more streamlined format and some tables such as revisions, previously found in the background notes, can now be found in the main datasets.

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

We welcome your feedback on this new style bulletin via our short survey.

As previously announced, the sector accounts content and data tables (Tables I, J, K and AH) contained within the Quarterly National Accounts release have now moved to a new publication – Quarterly Sector Accounts.

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10. Quality and methodology

The Gross domestic product (GDP) Quality and Methodology Information document 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 paper analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations. In addition to this analysis, Section 11 of the revisions to gross domestic product in Blue Book 2016 article updates the metrics used to test revisions performance in order to answer the question “Is GDP biased?”.

Reaching the GDP balance

The different data content of the 3 approaches, the output approach, the expenditure approach and the income approach, dictates the approach taken in balancing quarterly data. In the UK, there are far more data available on output than in the other 2 approaches. However, in order to obtain the best estimate of GDP (the published figure), the estimates from all 3 approaches are balanced to produce an average.

Information on the methods we use for balancing the output, income and expenditure approaches to measuring GDP can be found on our website.

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, slightly larger alignment adjustments are sometimes needed. To achieve this balance through alignment, balancing adjustments are applied to the expenditure and income components of GDP as required. They are applied to those individual components where data content is particularly weak in a given quarter due to a high level of forecast content.

The size and direction of the quarterly alignment adjustments in Quarter 4 (Oct to Dec) 2016 indicate that in this quarter the level of income is lower than the level of output. The alignment adjustment isn’t having any impact on the expenditure level due to the large annual statistical discrepancy which is also impacting on Quarter 4 2016.

Table 3 shows the balancing adjustments applied to the GDP estimates in this publication.

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