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; this is a 0.1 percentage point revision down from the preliminary estimate of GDP, in part reflecting a small downward revision to the estimated output of the production industries.

  • Growth in the latest quarter was driven by business services and finance within the services sector, there was, though, a small downward revision to services since the preliminary estimate of GDP, but this does not impact on services quarterly growth to one decimal place.

  • Business investment growth was flat between Quarter 3 (July to Sept) and Quarter 4 (Oct to Dec) 2017, but when compared with the same quarter a year ago business investment grew by 2.1%.

  • GDP was estimated to have increased by 1.7% between 2016 and 2017, a downward revision of 0.1 percentage points from the preliminary estimate and slightly lower than the 1.9% growth seen between 2015 and 2016.

  • Household spending grew by 1.8% between 2016 and 2017, its slowest rate of annual growth since 2012, in part reflecting the increased prices faced by consumers.

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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 seven 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 (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 onwards. As usual practice, with the proximity to the budget we publish more detailed breakdowns of some components, but these have been suppressed in the latest quarter representing lower data content at the second estimate of GDP.

This release is the first time an annual estimate of GDP for 2017 has been published for the expenditure and income approaches. In 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 – in this release, this is a particular feature of the detailed gross fixed capital formation (GFCF) dataset.

Release content

All data included within this release are seasonally adjusted.

Exceptional pre-release access for Office for Budget Responsibility

The Office for Budget Responsibility was granted exceptional pre-release access to GDP at 9:30am on 20 February 2018 so that they can prepare forecasts for the Spring Statement to be published on 13 March 2018.

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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 by 0.1 percentage points in several quarters when compared with the preliminary estimate of GDP published on 26 January 2018. The current and previous estimates of growth are displayed in Table 2.

In addition to the revisions to Quarter 4 2017 discussed in the main points, there have been revisions to Quarter 1 (Jan to Mar) and Quarter 3 (July to Sept).

Figure 1 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 period 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 (Apr to June) 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 revised down from 1.5% in the preliminary estimate of GDP.

Implied deflator

The GDP implied deflator at market prices for Quarter 4 2017 is 1.7% 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 2).

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

The population estimates used in this release are those published on 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, revised down by 0.1 percentage points from the preliminary estimate of GDP. This was driven by revisions to estimates of production, partially offset by upward revisions to construction.

Services

The largest component within the output approach of GDP is the services industries, which contributed to the growth of 0.4% in the output measure of GDP in Quarter 4 2017. Services increased by 0.6% overall, there was a small downward revision to services since the preliminary estimate of GDP, but this does not impact on services quarterly growth to one decimal place. Positive growth was recorded within three of the four sub-sectors of the services industries between Quarter 3 2017 and Quarter 4 2017:

  • transport, storage and communications increased by 1.1%

  • business services and finance increased by 0.9%

  • government and other services increased by 0.2%

  • distribution, hotels and restaurants decreased by 0.2%

Data for the retail industry are broadly comparable with Retail sales in Great Britain: December 2017, published on 19 January 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 0.5% between Quarter 3 2017 and Quarter 4 2017, revised down by 0.1 percentage points from the preliminary estimate of GDP. Within production, manufacturing was the only sub-sector to increase, growing by 1.3% in Quarter 4 2017 compared with Quarter 3 2017. Of the other sub-sectors, water supply industries remained flat to one decimal place, electricity, gas and steam and air conditioning decreased by 0.5% and mining and quarrying including oil and gas extraction decreased by 4.7%. The decrease in mining and quarrying was partly due to the shut-down of the Forties pipeline system (FPS) for a large part of December 2017.

More information can be found in the Index of Production statistical bulletin, which was published on 9 February 2018.

Construction

Construction output was estimated to have decreased by 0.7% in the fourth quarter of 2017, revised upwards from negative 1.0% in the preliminary estimate of GDP. This is the third consecutive quarter to show contraction, after a sustained period of positive growth in all quarters since Quarter 4 (Oct to Dec) 2015.

Despite this being the third quarter showing negative growth, the annual growth in 2017 of 5.1% 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.

Further information relating to the most recent quarter can be found in the Construction output in Great Britain statistical bulletin.

Agriculture

Agriculture, the sector that makes up the smallest proportion of total output, decreased by 0.9% into Quarter 4 2017. This was revised down from a decrease of 0.4% in the preliminary estimate of GDP due to taking on updated source data.

Figure 3 shows the contributions to GDP growth from the sectors of output. The services industries contributed most to GDP growth in Quarter 4 2017, with 0.4 percentage points. Throughout the periods shown in Figure 3, services have contributed most to GDP growth in all quarters.

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5. Slowdown in growth of household spending and business investment in Quarter 4 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. There has been a slow rate of growth in all quarters of 2017, when compared with the previous year. Household spending grew more strongly in the start of 2016, with a slowdown of growth in late 2016 and throughout 2017.

The annual rate of growth for 2017 is 1.8%, compared with 3.1% in 2016. This is the lowest rate of annual growth in household spending since 2012, when growth was also 1.8%. This lower rate of annual growth can in part be explained by the rise in prices faced by consumers.

General government final consumption expenditure (GGFCE)

GGFCE increased by 0.6% between Quarter 3 and Quarter 4 2017. The largest contributor to this increase was healthcare, followed by spending on public administration and education.

Revisions to other quarters in 2017 are driven by healthcare and public administration, where outturn information has replaced budgetary estimates.

Gross capital formation (GCF)

In Quarter 4 2017, gross fixed capital formation (GFCF) increased by 1.1% compared with Quarter 3 2017. Business investment makes up the largest proportion of total GFCF. In Quarter 4 2017, business investment was flat to one decimal place. The flat quarter-on-quarter performance of business investment in Quarter 4 2017 follows growth of 0.9% in Quarter 3 2017.

The general government and private dwelling sectors of GFCF contributed most to the GFCF increase in Quarter 4 2017, growing by 5.6% and 1.4% respectively. 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 the acquisition less disposals of valuables. The change in inventories component decreased, while the acquisition less disposals of valuables component increased between Quarter 3 and Quarter 4 2017. User should be aware that a number of adjustments have been applied to the changes in inventories dataset to help balance the different measurement approaches to GDP, so the change in inventories component should be considered accordingly. Please see the Quality and methodology section for further information about the balancing adjustments applied to this dataset.

Trade in goods and services

In Quarter 4 2017, the net trade deficit widened to £12,237 million in volume terms, from £9,661 million in Quarter 3 2017. This was due in part to large increases in the price of fuels that were imported combined with decreases in the volumes of fuels exported. Total trade imports increased by 1.5% whilst total exports decreased by 0.2%, between Quarter 3 and Quarter 4 2017.

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 £40,404 million in 2017.

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

Figure 4 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 gross capital formation at 0.6 percentage points, followed by household spending at 0.2 percentage points and general government at 0.1 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 0.5 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.

The income approach measures 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.

User should be aware that a number of adjustments have been applied to this dataset to help balance the different measurement approaches to GDP, so growth rates should be considered accordingly. Please see the Quality and methodology section for further information about the balancing adjustments applied to this dataset.

Compensation of employees (CoE)

CoE showed positive growth of 0.5% (seasonally adjusted) into Quarter 4 2017, slowing slightly from a 0.6% growth in Quarter 3 2017. Growth across the wages and salaries component remained broadly similar 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 0.3% in Quarter 4 2017.

Other income

There was an increase in other income of 0.9% in Quarter 4 2017. This category includes mixed income (mostly self-employment income) and the operating surplus of the non-corporate sector.

Gross operating surplus of corporations

Gross operating surplus of corporations saw positive growth in Quarter 4 2017 of 1.3%. This includes the operating surplus of private corporations, private non-financial corporations and public corporations. It should be noted that one of the primary contributors to this growth was the alignment adjustment, further information can found in the Quality and methodology section.

Figure 5 shows the contribution made by income components to current price GDP. Gross operating surplus of corporations was the largest contributor to the income measure of GDP in Quarter 4 2017, at 0.4 percentage points, followed by CoE at 0.3 percentage points.

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7. The 2017 annual picture

UK gross domestic product (GDP) increased by 1.7% between 2016 and 2017, revised down 0.1 percentage points from the preliminary estimate of GDP published on 26 January 2018. This release is the first time annual estimates of GDP measured using the income and expenditure approaches, as well as average GDP, have been published (annual growth in the preliminary estimate is based only on the output approach to GDP).

The 2017 annual picture shows a 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%.

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 second estimate of GDP 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.

Table 3 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 second estimate of GDP data tables.

Output

Despite increased 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 1.3 percentage points in 2017. The slowdown was broad-based across a number of the sub-sectors of services, but notable in the consumer-focused industries.

Expenditure

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

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 0.6 percentage points in 2017, with broad-based growth across the 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 1.4 percentage points in 2017 and the contribution of imports slowing down from 1.4 percentage points in 2016 to 1.1 percentage points in 2017. This in part reflects rising fuel prices 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. Despite continued growth in the wages and salaries component, there was a fall in the growth of employers’ social contributions in 2017.

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 remained flat in terms of 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 subsequently have been revised. At the time of preparation, data for Canada were unavailable; therefore are not included in the following analysis.

All of the areas included within our international comparisons witnessed positive growth in Quarter 4 (Oct to Dec) 2017. However, most areas experienced downward movements in the rate of growth in Quarter 4, when compared with their respective Quarter 3 (July to Sept) 2017 growth. Only France experienced an increased rate of growth in Quarter 4 when compared with Quarter 3, with growth in the latest quarter at 0.6% (Table 4).

The strongest growth seen in the latest quarter was 0.6% by 5 of the 10 areas that form this analysis (EU28, EA19, France, Germany and the USA). The weakest growth in the latest quarter was in Japan at 0.1%.

The European Union (EU28) economy grew by 0.6%, which meant that positive growth has now been seen in the area for 19 consecutive quarters. G7 countries saw a 0.5% growth in Quarter 4. All G7 countries are above pre-economic downturn peaks except for Italy whose GDP remains 5.7% below the pre-downturn peak (Quarter 1 (Jan to Mar) 2008). 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?

New model for publishing GDP

We published a response to the consultation on proposed changes to the Gross domestic product (GDP) release schedule on 19 October 2017. Further details on this response are available on our Consultation Hub.

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

UK Economic Accounts (UKEA)

Office for National Statistics (ONS), like all government departments, has to ensure all of its outputs meet accessibility guidelines. As a result, from the Quarter 4 (Oct to Dec) 2017 (29 March 2018) release onwards, we will no longer be publishing a PDF file of the UK Economic Accounts (UKEA). The data contained in the current PDF file will continue to be available within the UKEA datasets that are currently published.

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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 second estimate of GDP datasets in this release, have a target limit of plus or minus £2,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed. This has been the case for the income approach in Quarter 2 (Apr to June) 2017 and Quarter 4 (Oct to Dec) 2017, and the expenditure approach in Quarter 2 2017 to Quarter 4 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. Balancing adjustments are larger than usual in 2017. In the expenditure approach, adjustments have focused on inventories where some caution should be used in the interpretation of quarterly levels. In the income approach, adjustments are generally smaller quarterly on individual components, but are larger than usual over the course of 2017 and on the income approach overall, 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 level of expenditure and income are lower than the level of output.

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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