1. Main points

  • UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.3% between Quarter 1 (Jan to Mar) and Quarter 2 (Apr to June) 2017, unrevised from the preliminary estimate.
  • In the output measure of GDP, growth was driven by services, which grew by 0.5% between Quarter 1 and Quarter 2.
  • In the expenditure measure of GDP there was relatively strong growth in government spending and investment; there was, however, a slowdown in growth in both household spending and business investment, to 0.1% and 0.0% respectively in Quarter 2.
  • UK GDP growth in volume terms increased by 1.7% between Quarter 2 2016 and Quarter 2 2017.
  • UK GDP in current prices increased by 0.8% between Quarter 1 and Quarter 2 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.

This second estimate of GDP is produced around 7 and a half weeks after the end of the quarter. At this stage the data content of this estimate from the output measure of GDP has risen since the preliminary estimate to around 90% of the total required for the final output-based estimate. There is also around 70% data content available to produce estimates of GDP from the expenditure approach and 60% data content for the income approach.

Further information on all three approaches to measuring GDP can be found in the short guide to national accounts.

We launched a consultation on proposed changes to the GDP release schedule on 13 July 2017, including the introduction of monthly GDP estimates. Further details on the proposal, including a survey to respond to the consultation are available on our Consultation Hub.

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.

In line with National Accounts Revisions Policy, the only period open for revision in this release is Quarter 2 (Apr to June) 2017.

Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. Revisions to data provide one indication of the reliability of main indicators and we therefore 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 triangles are published on our website for UK GDP, UK gross value added, the GDP implied deflator and the expenditure and income components of GDP.

On 15 June 2017, the National Statistician announced that pre-release access to Office for National Statistics publications would stop with effect from 1 July 2017. This release is therefore the first Second estimate GDP release where ministers and other officials did not receive access to the information prior to publication.

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3. UK GDP growth is unrevised in Quarter 2 (Apr to June) 2017

UK gross domestic product (GDP) increased by 0.3% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017 and was unrevised from the preliminary estimate of GDP published on 26 July 2017. Table 1 shows GDP and the headline economic indicators from 2015 onwards, note that in this release only Quarter 2 was open for revision so all periods prior to this are unchanged.

Figure 1 shows the seasonally adjusted level of GDP along with quarterly growths. The growth between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017 is the 18th consecutive quarterly increase and continues the UK’s period of growth since Quarter 1 2013.

UK GDP growth in volume terms increased by 1.7% between Quarter 2 2016 and Quarter 2 2017, a slowing down when compared with the 2.0% growth seen between Quarter 1 2016 and Quarter 1 2017.

GDP per head

GDP per head is calculated by dividing GDP in chained volume measures by the latest 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.

In Quarter 2 (Apr to June) 2017, GDP per head grew by 0.1% compared with Quarter 1 (Jan to Mar) 2017. GDP per head is now 1.9% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 4 (Oct to Dec) 2015 (Figure 2).

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. The latest population estimates published on 22 June 2017 will be included in the quarterly national accounts release on 29 September 2017.

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4. Services continue to dominate growth in the output measure of GDP

The output approach to measuring GDP involves estimating production activity within the UK economy. It increased by 0.3% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017 and was unrevised from the preliminary estimate of GDP published on 26 July 2017.

In Quarter 2 2017, two of the four sectors showed positive growth, while two decreased:

  • agriculture increased by 0.4%
  • total production decreased by 0.3%
  • construction decreased by 1.3%
  • total services increased by 0.5%

The largest component within the output approach of GDP is the services industries, which drove the growth in the output measure of GDP. Growth was broad-based with all four sub-sectors of the services industries increasing between Quarter 1 2017 and Quarter 2 2017. The next largest contribution came from distribution, hotels and restaurants, which grew by 0.9%; with retail trade except of motor vehicles and motor cycles providing most of this increase.

Within production, two of the four components decreased between Quarter 1 2017 and Quarter 2 2017, resulting in a decline in total production output. The greatest decrease was in manufacturing (the largest component of production) at 0.6%. Electricity, gas, steam and air conditioning supply decreased by 0.2%. These decreases were moderated by an increase in mining and quarrying, at 0.4% and water supply and sewerage, at 0.1%.

Construction output was estimated to have decreased by 1.3% in the second quarter of 2017, this compares with an increase of 1.1% in the first quarter of 2017. This contraction was driven by falls in both new work, and repair and maintenance. Further information can be found in the Construction output in Great Britain statistical bulletin.

Figure 3 shows the contributions to growth from the sectors of output. The services industries are the only positive contributor to output GDP growth in Quarter 2 2017, at 0.4 percentage points, while production and construction both fell and together detracted around 0.1 percentage points from the 0.3% UK GDP quarterly growth.

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

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5. Expenditure approach sees a slowdown in household spending growth

The expenditure approach to measuring GDP involves estimating all final expenditures within the UK economy. This measure increased by 0.3% between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017.

Household final consumption expenditure (HHFCE) or household spending grew by 0.1% between Quarter 1 2017 and Quarter 2 2017. This was the lowest HHFCE quarterly growth figure since Quarter 4 (Oct to Dec) 2014 and is in line with a wider narrative of a deterioration of the economic position of consumers in the start of 2017.

The slowdown in growth in household spending in Quarter 2, compared with 0.4% growth in Quarter 1, was driven by a decline in growth in household expenditure on transport (including motor cars). Household expenditure on transport declined by 2.2% in Quarter 2 compared with a relatively strong Quarter 1 performance, where transport grew by 1.4%. This corresponds with reports from the society of motor manufacturers and traders (SMMT) that sales of new cars increased in Quarter 1, followed by a decline in the new car market in Quarter 2, as a result of changes to Vehicle Excise Duty (VED). The increased VED on high-polluting vehicles (which came into force in April 2017) led to consumers bringing forward planned new car purchases into Quarter 1 leading to a subsequent fall-off in purchases in the latest quarter.

As part of our quality assurance process to ensure coherence across the different measures of GDP we compared the spending data on the motor trades in the expenditure measure and the sales of vehicles in the output approach, which concluded in a review of the seasonal adjustment. This review indicated that the sales of motor vehicles in the output approach for Quarter 1 figure should be a little higher (and would not impact on headline GDP growth). As Quarter 1 is not open for revision in this release we have ensured the correct growth between Quarter 1 and Quarter 2, should the first quarter have been open for revision. Quarter 1 will be updated in the September quarterly national accounts when both quarters are open for revision. Note that increased data content available in the quarterly national accounts publication may lead to further revision in either the output or expenditure approach.

General Government final consumption expenditure (GGFCE) showed growth of 0.6% in Quarter 2 2017, the largest contributor to this was healthcare which was partially offset by a fall in public administration expenditure.

In Quarter 2 2017, gross fixed capital formation (GFCF) increased by 0.7% compared with Quarter 1 2017. Within GFCF, growth in business investment between Quarter 1 and Quarter 2 2017 was flat. The sectors contributing to GFCF growth between Quarter 1 and Quarter 2 were general government, public sector dwellings and private sector transfer costs. Further details can be found within the Business investment release.

Imports of goods and services have increased, by 0.4% and 1.8% respectively, between Quarter 1 and Quarter 2. Exports of goods also increased, by 1.5%, but exports of services decreased by 0.4%. As discussed in the UK trade release (10 August 2017) although the depreciation of sterling has caused a rise in trade prices, there have also been increases in volumes of imports and exports. Overall this has led to a slight widening of the trade balance in volume terms from negative £13.7 billion in Quarter 1 2017 to negative £13.8 billion in Quarter 2.

Figure 4 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures.

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6. Compensation of employees leads growth in the income measure of GDP

The income approach to measuring GDP involves estimating all income generated through production within the UK economy. It increased by 0.3% in chained volume measures (0.8% in current prices seasonally adjusted) between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017.

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

Within the income measure of GDP, three out of four components increased between Quarter 1 2017 and Quarter 2 2017.

Compensation of employees (CoE), which includes wages and salaries, and employers' social contributions, showed positive growth of 1.2% (seasonally adjusted) in Quarter 2 2017. Growth was chiefly driven by wages and salaries. CoE was the largest contributor to the income measure of GDP, contributing 0.6 percentage points to growth in the income measure of GDP.

Taxes on products and production less subsidies showed an increase of 1.7% in Quarter 2 2017 that contrasts with a decline of 4.6% seen in Quarter 1 2017.

There was a small increase in other income, of 0.4%. This category includes mixed income and the operating surplus of the non-corporate sector.

Gross operating surplus of corporations was the only component showing a decline, at negative 0.1% representing a small decline in the profits of companies. Please note that balancing adjustments have been applied to the gross operating surplus of corporations component in order to achieve a balanced dataset (see section 10). We advise that the growth rates of this component are taken in the context of the adjustments that have been applied.

Figure 5 shows the contribution made by income components to current price GDP, as noted earlier the largest contribution was from CoE.

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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 Organisation for Economic Co-operation and Development (OECD) at the time of preparation of this statistical bulletin (22 August 2017) and may subsequently have been revised. UK data are compiled within the Office for National Statistics. At the time of preparation, data for Canada were unavailable; therefore are not included in the following analysis.

During Quarter 2 (Apr to June) 2017, the UK experienced the slowest growth of 0.3% among European and G7 countries with data available at the time of preparation. This was just below that of Italy, which grew at 0.4%. This is the second consecutive quarter in which the UK had the weakest economic growth of these countries. In Quarter 2 2017, Japan experienced the highest growth at 1.0%.

All of the areas included within our international comparisons saw positive growth in Quarter 2 2017. Both Germany and the USA experienced growth of 0.6%, whilst France experienced growth of 0.5% (Table 2). The European Union (EU28) grew by 0.6%, marking 17 consecutive quarters of positive growth, and in the same period, the group of Euro Area countries (EA19) grew by 0.6% also.

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9. Are there any upcoming changes?

Blue Book 2017

The third estimate of GDP as published in the quarterly national accounts (29 September 2017) will be consistent with the UK National Accounts Blue Book, which will be published on 31 October 2017. The annual Blue Book includes a number of improvements to data sources and methods; we have published a number of articles detailing these changes and their impact on the national accounts:

A list of all National Accounts articles is available.

Methodological changes on gross domestic product

In the Impact of methodological changes to chain-linking on gross domestic product article we informed you that in Blue Book 2017, the reference year and last base year will move forward 2 years to 2015 and, pending the outcome of further analysis, we would investigate the feasibility of further moving the last base year on when the data for the most recent year are formed.

We have now completed this feasibility analysis and have concluded that we will not move the last base year beyond 2015 in Blue Book 2017. Therefore, the reference year and last base year for Blue Book 2017 and the Blue Book-consistent quarterly national accounts due for publication on 29 September 2017 will be 2015. Further methodological work will continue to develop an approach to further moving on the last base year.

Corrections to be aware of

We informed you 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 Revisions 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%.

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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 report 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 to answer the question “Is GDP biased?”

Reaching the GDP balance

The different data content 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 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 second estimate of GDP data tables in this release, have a target limit of plus or minus £2,000 million on any quarter. To achieve the 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 2 2017 indicate that in this quarter the level of expenditure and income are lower than the level of output.

Table 3 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

Robert Kent-Smith
gdp@ons.gsi.gov.uk
Telephone: +44(0)1633 651618