GDP first quarterly estimate, UK: April to June 2021

• UK gross domestic product (GDP) is estimated to have increased by 4.8% in Quarter 2 (Apr to June) 2021 following the easing of coronavirus (COVID-19) restrictions.

• There have been increases in services, production and construction output over the quarter.

• In output terms, the largest contributors to this increase were from wholesale and retail trade, accommodation and food service activities, and education.

• The level of GDP is now 4.4% below where it was pre-coronavirus pandemic at Quarter 4 (Oct to Dec) 2019.

• In Quarter 2 2021, there were increases in nearly all main components of expenditure apart from "trade", with the largest contribution from household consumption, which contributed 4.1 percentage points to the 4.8% increase following the easing of coronavirus restrictions in Quarter 2 2021 compared with Quarter 1 (Jan to Mar) 2021.

UK gross domestic product (GDP) is estimated to have increased by 4.8% in Quarter 2 (Apr to June) 2021, following the easing of coronavirus (COVID-19) restrictions (Figure 1). Monthly estimates published today (12 August 2021) show that GDP increased across all three months at 2.2% in April, 0.6% in May and 1.0% in June 2021.

The level of GDP in the UK is now 4.4% below where it was prior to the coronavirus pandemic at the end of 2019.

Nominal GDP rose by 3.6% in Quarter 2 2021. 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 comprise GDP. The implied deflator fell by 1.1% in the second quarter of 2021. Compared with the same quarter a year ago, the implied GDP deflator decreased by 3.6% mainly reflecting a decrease in the implied price change of government consumption.

Several countries have published first estimates of nominal and real GDP for the second quarter of 2021, including France, Germany, Spain and the United States. Italy and Canada have also published first estimates of real GDP for Quarter 2 2021, but not nominal GDP and therefore have not been included in Figure 2. The UK experienced the largest increase in real GDP of these countries in Quarter 2 2021, in part reflecting the timing of the tightening and easing of public health restrictions in the first half of this year.

Of the other countries, Italy and Spain had the next largest volume increases in Quarter 2 2021. However, these two countries are the furthest away from their pre-pandemic levels of GDP, with Spain 6.8% and Italy 3.8% below their Quarter 4 (Oct to Dec) 2019 levels. The United States is the only economy to have recovered to above pre-pandemic levels (0.8%).

Recent analysis highlights the challenges of making international comparisons of GDP at this time and suggests it may be useful to compare nominal and real estimates of GDP, as well as estimates excluding government expenditure. This is because of how we measure non-market output in the UK, where we use direct measures of the volume of activity for health and education. Our initial international engagement has shown that these volume indicators have not been implemented as widely by other national statistical institutes (NSIs) in the early estimates of GDP, so there are some challenges around international comparability at this stage.

Services, production, and construction output all increased in Quarter 2 (Apr to June) 2021 as coronavirus (COVID-19) restrictions continued to ease to varying degrees in England, Scotland and Wales.

Services

There was an increase in services output of 5.7% in Quarter 2 2021, having contracted by 2.1% in Quarter 1 (Jan to Mar) 2021. Services output is now 3.5% below Quarter 4 (Oct to Dec) 2019 levels.

Wholesale and retail trade, accommodation and food service activities, and education provided the largest quarterly contributions to services output growth (Figure 3).

Accommodation and food service activities increased by 87.8% in Quarter 2 2021, while wholesale and retail trade increased by 12.8%, in response to the re-opening of indoor hospitality, Euro 2020 and the reopening of non-essential retail. Combined, these consumer-facing services increased by 16.7% in Quarter 2 2021.

There was also a 19.4% increase in education output in Quarter 2 2021, reflecting the re-opening of schools over the period as in-school attendance rates increased. There is more information on education and health estimates in Quarter 2 2021 in Section 4: Expenditure, including adjustments to capture health services more fully such as the NHS Test and Trace service.

Production

Production output rose by 0.5% in Quarter 2 2021, following a fall of 0.5% in the previous quarter, and remains 3.3% below its pre-coronavirus pandemic level. The increase in production output in Quarter 2 2021 was driven mainly by a 1.8% rise in manufacturing, in particular that of food products, beverages and tobacco, and machinery and equipment. There was a fall in the output of the manufacture of transport equipment, which was particularly impacted by microchips shortages.

The production of motor vehicles fell by 16.7% in Quarter 2 2021, its second consecutive quarterly fall, as a global semiconductor shortage affecting the production of new cars disrupted supply chains. Output in the manufacture of motor vehicles sub-industry is now 24.6% below its pre-pandemic level (Quarter 4 2019) (Figure 4).

Spending on motor vehicles increased sharply by 33.2% in Quarter 2 2021, and is 1.8% above its pre-pandemic level (Figure 4). This rise in demand coincides with the re-opening of car showrooms in England and Wales from 12 April 2021. An increase in the price of second-hand cars later in the quarter reflects the current shortages in new cars alongside rising consumer demand. This can be further seen in the expenditure measure of gross domestic product (GDP) in the Trade figures, which estimate a rise in the import of cars (and a fall in exports) throughout Quarter 2 2021, likely reflecting a turn towards foreign supply to meet the rising domestic demand for cars throughout the quarter.

Elsewhere in production, there was a contraction of 16.6% in mining and quarrying in Quarter 2 2021, including the oil and gas extraction sub-industry, reflecting the planned temporary closures for maintenance of oil field production sites throughout the quarter. Output in the extraction of crude petroleum and natural gas in June 2021 was at its lowest monthly level since records began in 1997.

Construction

Construction output increased by 3.3% in Quarter 2 2021, reflecting a rise in new work (3.7%), particularly infrastructure, and repair and maintenance (with growth of 1.7%). Construction has now nearly recovered to pre-pandemic levels, with output in Quarter 2 2021 at 0.6% below Quarter 4 2019 levels.

There was a decline in output across the three months of the quarter as some businesses reported limited availability of certain construction products, most notably timber, steel, cement and tiles. However, there was still a rise in output compared with Quarter 1 (Jan to Mar) 2021, because of a low base of construction output in the first quarter. Compared with the same quarter over a year ago, construction increased by 53.2%. This reflects comparison with a lower base level with the first lockdown restrictions severely affecting the industry. Further detail on construction can be found in Construction output in Great Britain: June 2021, new orders and construction output prices, April to June 2021.

In Quarter 2 (Apr to June) 2021, there were increases in all the main components of expenditure apart from “Trade”, with the largest contribution from household consumption, which contributed approximately 4.1 percentage points to the 4.8% increase. These increases are following the easing of coronavirus (COVID-19) restrictions in Quarter 2 2021 compared with Quarter 1 (Jan to Mar) (Figure 5).

Household consumption

In Quarter 2 2021, household consumption increased by 7.3%, following a fall of 4.6% in the previous quarter, reflecting the easing of coronavirus restrictions. In comparison with levels before the coronavirus pandemic, household consumption is now 7.0% lower than in Quarter 4 (Oct to Dec) 2019.

The largest contributions were from spending on restaurants and hotels, and transport, which all performed strongly with the reopening of the economy. This was partly offset by a fall in food and drink consumption expenditure, which may be because of the strong rise in spending on restaurants and hotels. Previous analysis from the Retail Sales Index showed feedback from retailers that suggested that in-store food sales were negatively affected in May by both the reopening of all retail sectors and the relaxation of hospitality restrictions.

Consumption of government goods and services

In Quarter 2 2021, government consumption increased by 6.1% driven by increases in education and health. The consumption of education services increased by 27.1% in Quarter 2 2021, following a 12.8% fall in the previous quarter. This reflects an increase in school attendance in all months across the quarter as schools reopened.

The consumption of health services increased by 5.1% in Quarter 2 2021 as there was strong growth in non-COVID health activity, in particular with General Practice appointments, which showed strong growth in June 2021, further boosted by NHS Test and Trace services and the COVID-19 vaccination programme.

Government final consumption expenditure in nominal terms includes spending on the NHS Test and Trace service and the COVID-19 vaccination programme. However, these activities are not captured within our normal source data for government final consumption expenditure in volume terms. We have therefore added NHS Test and Trace and COVID-19 vaccination adjustments of £7,000 million to our volume measure in Quarter 2 2021, of which £4,600 million is in relation to the NHS Test and Trace service and £2,400 million is in relation to the COVID-19 vaccination programme. The monthly breakdown of these adjustments is published in the GDP monthly estimate.

These approximate estimates are informed by the latest available data including in-year spending data for the NHS Test and Trace service, the available estimated cost to secure and manufacture COVID-19 vaccines for the UK and the deployment of vaccines in England, available testing and vaccination data and estimated imports. These are early estimates that will be refined when new methods are introduced later in 2021.

Not all of this extra activity will be seen in the output of the health industry as there are other industries involved in the production of COVID-19 vaccines and various testing kits, as well as a number of services industries involved in the logistical process of delivering the programmes. We will be undertaking further work to understand the supply chains involved in delivering the NHS Test and Trace service, as well as the production and distribution of COVID-19 vaccines, which may lead to some revisions to the industry composition of these activities.

In line with the National Accounts Revision Policy, both monthly and quarterly GDP in Quarter 1 2021 (January to March) are closed for revisions until the Quarterly national accounts release on 30 September 2021. This constrains our capacity to take on revisions for the first three months of 2021. The latest health activity information also suggests some revisions to our existing profile: monthly data for health output is now expected to be weaker in January, higher in March 2021, and is indicative of growth in non-COVID 19 health output from Quarter 1 to Quarter 2 2021.

However, without revising our first quarter estimates, simply taking on estimated activity for April to June 2021 would imply a fall in health activity between Quarter 1 and Quarter 2 2021. With the data available, to produce our best estimate of growth within the health sector that is consistent across monthly and quarterly GDP, we have incorporated some revisions to April through to June in our monthly GDP estimates to reflect this expected quarterly increase. We have applied a downward adjustment in government consumption of health across Quarter 2 as a whole so as to achieve consistency with monthly GDP. This approach, necessitated by the size and timing of the revisions to health activity and the national accounts revisions window at this point in our annual cycle, will help preserve the monthly and quarterly path of healthcare output. We will fully reflect these expected revisions to the non-COVID 19 health activity in the next Quarterly national accounts on 30 September.

Gross fixed capital formation

In Quarter 2 2021, gross fixed capital formation contracted by 0.5%. This was driven by a 9.7% decline in government investment, however, it is important to note that the data at this stage are preliminary and subject to revision.

Elsewhere, business investment increased by 2.4% in Quarter 2 2021, though it is still 15.3% below its pre-pandemic levels (Figure 6). Evidence from the Bank of England’s Decision Maker Panel survey found that in Quarter 2, overall uncertainty for businesses has improved. The percentage of businesses that viewed the overall level of uncertainty facing their business as high or very high was 50% in June 2021, the lowest level since February 2020. Coronavirus remained the largest source of uncertainty for 25% of businesses in June, down from 32% in May.

Total change in inventories rose in Quarter 2 2021 by £87 million, although there was an increase of £2.3 billion excluding the alignment adjustment. Manufacturing industries contributed the most to this change in inventories, particularly in materials stores and fuels. Comments from companies noted an increase of the cost of materials and increasing stocks to hedge the supply chain problems and in readiness for the end of lockdowns and the economy opening up fully.

Note that alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to GDP. More detail can be found in Section 9: Quality and methodology. Therefore, the unadjusted data can provide a better understanding of the change in the inventory position of businesses in the whole economy.

Net trade

The latest trade figures show there was a further rebound in goods trade in Quarter 2 2021, while services trade remains subdued. Some of the increase in trade flows in the second quarter is likely to reflect the recovery following the effects of EU exit and the coronavirus pandemic earlier in the year.

As announced on 29 June please see the monthly trade release regarding a correction and revisions to 2020 published on 9 July, which has taken place outside of the usual National Accounts revision period. This revision to trade statistics will be reflected in the Quarterly national accounts published on 30 September 2021.

In volume terms, goods exports increased by 9.6%, largely driven by increases in chemicals, machinery and transport equipment, and material manufacturers. In contrast, there was a 4.7% decline in the volume of service exports, particularly in financial (fall of £1.2 billion), travel (fall of £0.4 billion) and insurance (fall of £0.4 billion). There was a similar pattern in the flows of imports, as goods imports increased by 10.0% while service imports declined by 3.8%.

Nominal gross domestic product (GDP) increased by 3.6% in Quarter 2 (Apr to June) 2021 (Figure 8). This increase was driven by increases in taxes less subsidies, compensation of employees and gross operating surplus.

Taxes in Quarter 2 2021 increased by 8.5%, primarily driven by higher Value Added Tax (VAT) revenues following the re-opening of the economy. There was also a marked 22.6% fall in subsidies, this was driven by a fall in the Small Business Support Scheme (SMG) and a fall in those that had been furloughed under the Coronavirus Job Retention Scheme (CJRS). This decrease in CJRS was partly offset by an increase in the Self-Employment Income Support Scheme (SEISS).

According to the Business Insights and Conditions Survey (BICS), with the easing of restrictions, the percentage of UK businesses currently trading increased from 75% in late March 2021 to 88% in late June 2021. As a result of easing restrictions and reopening of the economy, the proportion of the workforce on furlough has fallen from 17% in late March 2021 to 5% in late June 2021, the lowest proportion since the furlough scheme began.

Compensation of employees increased by 1.7% in Quarter 2 2021 driven by increases in both wages and salaries of 1.8% and employers’ social contributions of 1.3%.

Gross operating surplus (GOS) of corporations increased by 2.5% in Quarter 2 2021. However, this mainly reflects the alignment adjustment that is applied to this component for the purpose of balancing the income estimate of gross domestic product (GDP) for this quarter (Table 3). When the alignment adjustment is removed, GOS of corporations increased by 1.5%.

According to the EY UK profit warning report, in Quarter 2 2021, UK companies issued 32 profit warnings, the lowest figure recorded for 22 years. This compares with 165 profit warnings issued in Quarter 2 2020.

Contribution to growth

Contribution to growth indicates how many percentage points a sector or industry is adding or removing from a given growth rate, usually headline GDP growth.

Chained volume measure

Data in chained volume measures (CVM) within in 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.

Gross domestic product (GDP)

A measure of the economic activity produced by a country or region. 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

Index numbers

Data relative to a given base value, which typically refers to a particular year or quarter.

Rolling three-month growth

Rolling three-month growth takes the average level of three consecutive months (for example, April, May and June), and compares it with the average level of the previous three months (for example, January, February, and March). The rolling three-month growth rate is often used alongside the monthly growth rate, as the latter can be more volatile.

For further definitions, please see the Glossary of economic terms.

In line with the National Accounts Revisions Policy, data for Quarter 2 (April to June) 2021 are published for the first time, with no revision to previous quarters.

In Blue Book 2021, a new framework will be introduced to improve how we produce volume estimates of gross domestic product (GDP) for balanced years as part of the supply use process. This framework includes the implementation of double-deflated industry-level gross value added for the first time. This improvement will be reflected in the September quarterly national accounts and October monthly GDP estimates.

On 28 June 2021 we published Blue Book 2021 indicative impacts of this change to annual GDP from 1997 to 2019. We also published further impacts on 28 June on the impact on this change to quarterly GDP from 1997 to 2019. We plan to publish further impacts on these changes at the quarterly industry level on 8 September 2021.

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 take the lead because of the larger data content.

Because of quarterly GDP being a balanced measure of the three approaches and the output approach focusing solely on growth in gross value added and output as a proxy for GDP, there is a difference in 2019 and 2020 data (in both levels and growths terms) between the quarterly publications (average GDP) and the GDP monthly estimate (output approach to GDP). Quarterly GDP is the lead measure of GDP because of its higher data content and inclusion of variables, which enable the conversion from a gross value added concept to a GDP basis.

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 GDP first quarterly estimate datasets, have a target limit of plus or minus £3,000 million on any quarter.

To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where data content is particularly weak in a given quarter because of a higher level of forecast content. In this release, we have applied no balancing adjustments to expenditure or income.

The UK National Accounts are drawn together using data from many different sources. This ensures that they are comprehensive and provide different perspectives on the economy; for example, sales by retailers and purchases by households. Further information on measuring gross domestic product (GDP) can be found in the Guide to the UK National Accounts and more quality and methodology information is available in the Gross domestic product (GDP) QMI.

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 Gross domestic product (GDP) QMI analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.

GDP estimates for Quarter 2 2021 are subject to more uncertainty than usual as a result of the challenges we faced estimating GDP in the current conditions. Differences in the methods for estimating the output of health and education services across different countries mean GDP may be less internationally comparable during the coronavirus (COVID-19) pandemic and recovery than usual, so should be made with increased caution. For more information, please refer to our recently published blog.

Removal of datasets in GDP first quarterly estimate

As part of the GDP first quarterly estimate (FQE) and quarterly national accounts (QNA) releases, a number of datasets are produced. Currently, both the GDP revision triangles and real time databases are produced in both estimates. These datasets aim to provide an indication of the accuracy of the data and shows revisions throughout its timeseries. However, in a FQE, in line with the National Accounts Revision Policy, there are not normally revisions to time series at this stage and as such, these datasets will not be produced during FQE in the future. The datasets will be continued to be published during QNA and any other GDP estimate where there are revisions to timeseries. For further queries on this, please contact: GDP@ons.gov.uk.