GDP first quarterly estimate, UK: April to June 2023

• The first quarterly estimate of UK real gross domestic product (GDP) shows that the economy increased by 0.2% in Quarter 2 (Apr to June) 2023.
• Monthly estimates published today (11 August 2023) show that GDP is estimated to have grown by 0.5% in June 2023, after an unrevised fall of 0.1% in May 2023 and growth of 0.2% in April 2023.
• In output terms, the services sector grew by 0.1% on the quarter, driven by increases in information and communication, accommodation and food service activities, and human health and social work activities; elsewhere, the production sector grew by 0.7%, with 1.6% growth in manufacturing.
• In expenditure terms, there was strong growth in household consumption and government consumption, which was partially offset by a fall in international trade flows in the second quarter.
• Compared with the same quarter a year ago, the implied GDP deflator rose by 6.7%, this follows growth of 6.5% in the previous quarter; this largely reflects a fall in the implied price of imports which contributes positively to the implied GDP deflator.

The first quarterly estimate of UK real gross domestic product (GDP) shows that the economy increased by 0.2% in Quarter 2 (Apr to June) 2023 (Figure 1). This follows growth of 0.1% in the previous quarter. The level of quarterly GDP in Quarter 2 2023 is now 0.2% below its pre-coronavirus (COVID-19) level in Quarter 4 (Oct to Dec) 2019. Compared with the same quarter a year ago, GDP is estimated to have increased by 0.4%.

Early estimates of GDP are subject to revision. For more information please refer to our Communicating the UK economic cycle methodology.

Monthly estimates published today (11 August 2023) show that GDP is estimated to have grown by 0.5% in June 2023, following a fall of 0.1% in May 2023 and growth of 0.2% in April 2023, both unrevised from the previous publication.

It is important to note that the coronation of King Charles III on 6 May 2023 led to an additional bank holiday on Monday 8 May. As this is a one-off event, this impact does not get removed from our seasonally adjusted estimates. This should be considered when interpreting the seasonally adjusted movements involving May and June 2023, and to a lesser extent the Quarter 2 2023 estimates.

Nominal GDP is estimated to have increased by 2.3% in Quarter 2 2023, and was 7.1% higher than the same quarter a year ago.

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. It is important to note that the GDP deflator covers the whole of the domestic economy, not just consumer spending, and also reflects the change in the relative price of exports to imports. For more information on the implid GDP deflator, see our Measuring price changes of the UK national accounts: February 2023 article.

The implied price of GDP rose by 2.1% in Quarter 2 2023, which was primarily driven by higher price pressures for household consumption (1.5%) and government consumption (3.1%). The implied price of GDP was 6.7% higher in Quarter 2 2023 than the same quarter a year ago, a slight increase from growth of 6.5% in the previous quarter.

In the year to Quarter 2 2023, growth was driven by strong rises in the price of household consumption, though there was a slowing in the latest quarter of how much these prices increased. There have also been large price movements in internationally traded goods and services, where there was an easing in the implied price of imports; this contributes positively to the increase in the GDP implied deflator (Figure 2). Further information on the price movements of trade is discussed in our article, The purchasing power of GDP, UK: 2022.

In Quarter 2 (Apr to June) 2023 there were increases in all main sectors where services output rose by 0.1%, production by 0.7%, and construction by 0.3%.

Services

Services output rose by 0.1% in Quarter 2 2023, following a 0.1% increase in Quarter 1 (Jan to Mar) 2023. Figure 3 shows that there was a mixed performance for the service sub-sectors in the second quarter, with growth in 9 out of the 14 sub-sectors offset by falls in the other 5. Overall, consumer-facing services contributed positively to growth in Quarter 2 2023, increasing by 0.8%.

The largest positive contribution to growth was from the information and communication sub-sector which grew by 1.0%, with the biggest increases in motion picture, video and TV programme production, and computer programming, consultancy and related activities. The next largest positive contribution to growth was from accommodation and food service activities which increased by 1.6%. This was driven by food and beverage services which saw a particularly strong month in June, with anecdotal evidence from the monthly business survey suggesting that good weather and an increase in live events boosted turnover for businesses.

However, these increases were partially offset by a decline of 1.0% in professional, scientific and technical activities, which saw falls in scientific research and development, architectural and engineering activities, and advertising and market research.

For further information on the sub-sector movements, please see our GDP monthly estimate, UK bulletin.

Production

Production output increased by 0.7% in Quarter 2 2023, following growth of 0.1% in the previous quarter.

The increase in production output in the latest quarter was mainly driven by an increase of 1.6% in manufacturing. There were increases in 8 out of the 13 sub-sectors, which may reflect falling input prices across the quarter relieving some pressure on manufacturers.

The largest positive contribution was from the manufacture of transport equipment (Figure 4), in particular the manufacture of motor vehicles, trailers and semi-trailers, which performed strongly in April and June 2023. Anecdotal evidence from the Society of Motor Manufacturers and Traders (SMMT) reported a 16.2% increase in car manufacturing in June 2023 compared with the same month a year ago.

There was no growth in electricity, gas, steam and air conditioning supply in the latest quarter, which may reflect lower consumption of energy as a result of higher prices and warmer weather in May and June 2023.

Elsewhere there was a decline of 4.3% in mining and quarrying in the second quarter of 2023, mainly driven by falls in the extraction of crude petroleum and natural gas. This is the fifth consecutive quarterly fall in mining and quarrying.

Construction

Construction output rose by 0.3% in Quarter 2 2023, following growth of 0.4% in Quarter 1 (Jan to Mar) 2023. The growth in Quarter 2 2023 was driven by repair and maintenance which grew by 0.9%. This growth was partially offset by a fall of 0.1% in new work.

Further detail on construction growth rates can be found in our Construction output in Great Britain: June 2023, new orders and Construction Output Price Indices, April to June 2023.

There was an increase in household consumption in Quarter 2 (Apr to June) 2023, while there was also higher government spending on the quarter (Figure 5). This was partially offset by a decrease in the volume of net trade in Quarter 2 2023.

Household consumption

There was a 0.7% increase in real household expenditure in Quarter 2 2023, following no growth in the previous quarter. This increase is in line with consumer facing services in the output measure of gross domestic product (GDP), which showed growth of 0.8% in the latest quarter. Within household consumption, the largest contributions to growth in the latest quarter were from:

• transport
• recreation and culture
• restaurants and hotels
• energy (gas)

In current price terms, household expenditure rose by 2.2% on the quarter, as recent inflationary pressures increased the nominal value of this spending. The implied price of household expenditure increased by 7.4% when compared with Quarter 2 2022. This was an easing in inflationary pressures from the 9.5% in the year to Quarter 1 (Jan to Mar) 2023, although the rate of the price change in household expenditure is still high by historical standards.

Consumption of government goods and services

Real government consumption expenditure increased by 3.1% in Quarter 2 2023, mainly reflecting higher spending on public administration and defence. There was a pick up in the final consumption expenditure of health, which saw higher than normal growth for this time of year despite industrial action.

Nominal government consumption expenditure increased by 6.4% in Quarter 2 2023, driven by increased spending on health, and on public administration and defence. The increase in health spending is primarily reflected in higher wages and salaries reflecting the NHS pay settlement. For further details, please see GOV.UK’s press release, Government and health unions agree pay deal paving way for an end to strike action. However, these expenditure data are based on early outturn data and budgetary plans, and may be subject to revision when firmer data become available.

Gross capital formation

There was no growth in gross fixed capital formation (GFCF) in the latest quarter, this follows a rise of 2.4% in Quarter 1 2023. There was a 3.4% increase in business investment on the quarter, offset by a 6.7% fall in government investment. Growth in business investment was driven by increased transport investment, in particular on aircraft, which saw an increase in imports from the United States in April 2023 as shown by our UK trade: April 2023 bulletin. Elsewhere, investment in ICT equipment, and other machinery equipment, declined on the quarter following strong growth in Quarter 1 2023, which brought investment forward in response to the super-deduction allowance expiring on 31 March 2023.

Excluding the alignment and balancing adjustments, the change in inventories in Quarter 2 2023 was negative £1.9 billion (Table 2).

Net trade

HM Revenue and Customs (HMRC) implemented a data collection change affecting data on goods exports from Great Britain to the EU in January 2021, and data on goods imports from the EU to Great Britain in January 2022. For more information see HMRC's Methodology changes to trade in goods statistics from March 2022 article. We have applied adjustments to our estimates of goods imports from the EU for 2021 to reflect this data collection change, which brought imports and exports statistics onto a like-for-like basis in 2021, as detailed in our Trade in goods: Adjustments to 2021 EU imports estimates, by chapter dataset.

The full time series for goods imports from and exports to the EU contains a discontinuity from January 2021 resulting from the move from Intrastat to customs declarations, as detailed in our Impact of trade in goods data collection changes on UK trade statistics: adjustments to 2021 EU imports estimates article. We are continuing to work with HMRC to consider possible options to account for this discontinuity.

When the requirement for customs declaration was introduced for imports of goods to Great Britain from the EU in January 2022, a new policy of Staged Customs Controls (SCC) was also implemented. This allowed customs declarations to be reported up to 175 days after the date of import for imports of non-controlled goods from the EU to Great Britain. Some double counting occurred, with imports recorded by the Intrastat Survey in the second half of 2021 appearing again on customs declarations in the first half of 2022.

We outlined our plan to include a finalised adjustment in our upcoming GDP quarterly national accounts, UK: April to June 2023 and Balance of payments, UK: April to June 2023 releases (publishing on 29 September 2023) in our Impact of trade in goods data collection changes on UK trade statistics: further update on Staged Customs Controls article. This will represent a downward adjustment to EU imports of trade in goods data for the period from January to June 2022. Temporary arrangements still apply for imports of goods from Ireland to Great Britain.

The UK’s trade deficit for goods and services further declined to 2.4% of nominal GDP in Quarter 2 2023 (Figure 6). However, there have been large movements in non-monetary gold over the last quarter, which can be volatile. Excluding non-monetary gold, the trade deficit was 2.9% of nominal GDP in Quarter 2 2023.

Export volumes fell by 2.5% in the latest quarter, driven by a fall of 0.8% in goods exports as well as a 4.0% fall in services exports. The fall in goods exports was mainly driven by large movements in non-monetary gold, however this series also appears within gross capital formation (GCF) as valuables and so the effect is GDP neutral.

The fall in services exports was driven mainly by other business services, with decreases in advertising and market research, management consulting, and other trade in services.

Import volumes increased by 1.0% in the latest quarter, driven by a 1.7% increase in goods imports which were driven mainly by machinery and transport equipment. The increase in machinery and transport equipment was driven by cars, as well as aircraft and road vehicles other than cars.

There was also a fall of 0.4% in services imports in the latest quarter, driven by travel, and insurance and pension imports.

In the latest quarter, there was a 2.4% fall in the implied price of imports; driven by a 3.7% decline in goods imports. This fall was driven by fuels where there has been an easing in prices following the large increases in wholesale gas prices in 2022. A decrease in the implied price of imports contributes positively to the increase in the GDP implied deflator.

Nominal gross domestic product (GDP) rose by 2.3% in Quarter 2 (Apr to June) 2023, and increased by 7.1% relative to the same quarter last year. The quarterly rise was driven by growth in compensation of employees and taxes less subsidies (Figure 7).

Compensation of employees increased by 1.9% in Quarter 2 2023, driven by a rise in wages and salaries of 2.6% and partially offset by a fall of 1.7% in employers’ social contributions. Early estimates suggest that the strong increase in wages and salaries reflects rises in public sector earnings, particularly hospital wages and salaries reflecting the NHS pay settlement. For further details, please see GOV.UK’s press release, Government and health unions agree pay deal paving way for an end to strike action.

Early estimates show that taxes less subsidies increased by 22.2% in Quarter 2 2023, driven by a large decrease in subsidies because of the lower payments as part of the Energy Price Guarantee scheme and the Energy Bill Relief Scheme. In October 2022, the Office for National Statistics (ONS) announced that the Energy Price Guarantee scheme had been classified as a subsidy on products from central government to energy suppliers in the non-financial corporations sector in the UK. For more information, see our Energy Price Guarantee classification review.

The equivalent support scheme for businesses and non-domestic customers was announced as the Energy Bill Relief Scheme. This scheme will provide a discount on gas and electricity unit prices, and the UK government will compensate the suppliers for this reduction. In October 2022, the ONS announced that the scheme had also been classified as a subsidy on products from central government to energy suppliers in the non-financial corporations sector in the UK. For more information, see our Energy Bill Relief Scheme classification review. Data for Quarter 2 2023 are an initial indicative estimate, which will be revised over the coming months as firmer data become available.

Total gross operating surplus (GOS) of corporations fell by 5.5% in Quarter 2 2023, reflecting a lower alignment adjustment compared with Quarter 1 (Jan to Mar) 2023, although there continues to be increased uncertainty around the full impacts of the Energy Price Guarantee scheme. More detail can be found in Section 9: Measuring the data. However, excluding the alignment adjustment, corporations GOS showed no growth on the quarter (Table 3). Data content for this component is low at this stage in the GDP publication model.

In line with the National Accounts Revisions Policy, data for Quarter 2 (Apr to June) 2023 are published for the first time, with no revision to previous quarters.

In the Quarterly national accounts release (scheduled for pulication on 29 September 2023) data will be revised throughout the time series in line with Blue Book 2023. On 3 July 2023 we published a methodology on Blue Book 2023 indicative impacts of this change to annual GDP from 1997 to 2020. We plan to publish further impacts of these changes on 2020 and 2021, and at the industry level, on 1 September 2023.

The next quarterly national accounts will incorporate the Blue Book 2023 methodological changes, improved source data, and additional updated data as would happen in all quarterly national accounts releases. This also includes new Value Added Tax (VAT) turnover data for Quarter 4 (Oct to Dec) 2022 and Quarter 1 (Jan to Mar) 2023.

Since Quarter 1 2020, when the impact of coronavirus (COVID-19) resulted in many school closures, estimates of education have been adjusted to account for the contribution of remote teaching. This has now stopped, with Quarter 2 2023 being the last to incorporate this adjustment. To prevent a step change in data it was agreed that these adjustments would be discontinued as soon as revision policy allowed. The periods affected by this change are Quarter 2 2022 upto and including Quarter 2 2023.

Based on this new information, we will also review the balancing of the three measures of gross domestic product (GDP) from 2022 onwards. These data changes are likely to lead to further revisions to the indicative estimates published in this article, as well as impacts for our pre-coronavirus (COVID-19) pandemic level recovery of GDP.

Reaching the gross domestic product (GDP) balance

The different data content and quality of the three approaches – the output approach, the expenditure approach and the income approach – dictate the method used 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. 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.

Quarterly GDP is a balanced measure of the three approaches, while the GDP monthly estimate focuses on gross value added (GVA) and output as a proxy for GDP. This results in data differences (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 GVA concept to a GDP basis.

Information is available on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP.

Alignment adjustments, found in Table M of the GDP data tables, have a target limit of plus or minus £3,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed as explained in our Recent challenges of balancing the three approaches of GDP article. Our standard practice is to prefer that the alignment adjustment be out of tolerance rather than over-adjust individual GDP components to achieve a balance. This is most likely to occur in the latest quarter where the constraints are larger, where we must align to the output estimate for the change in GDP, and where the data content is at its lowest.

In this quarter, the alignment adjustment, used to align income to average GDP, is larger than normal (Table 3) in Quarter 4 (Oct to Dec) 2022 and Quarter 1 (Jan to Mar) 2023. This reflects the current challenges and uncertainties within the income approaches, in particular on the measurement of the Energy Price Guarantee scheme and the Energy Bill Relief Scheme within the accounts. Work will continue with a focus on the income approaches to GDP, and we will continue to review this over the coming months as and when more information becomes available.

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. The balancing adjustments applied in this estimate are shown in Table 5. The resulting series should be considered accordingly.

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 our Guide to the UK National Accounts, and more quality and methodology information is available in our 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 common 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.