GDP first quarterly estimate, UK: January to March 2021

• UK gross domestic product (GDP) is estimated to have decreased by 1.5% in Quarter 1 (Jan to Mar) 2021.
• There have been contractions in services and production output, however, construction output grew over the quarter.
• In output terms, school closures and a large fall in retail sales earlier in the quarter dragged down GDP growth.
• The level of GDP is now 8.7% below where it was before the pandemic at Quarter 4 (Oct to Dec) 2019.
• Government consumption increased and the trade balance improved in Quarter 1 2021 (although this was because of imports falling more sharply than exports), however household final consumption expenditure and business investment declined as a result of the reintroduction of coronavirus restrictions.

UK gross domestic product (GDP) is estimated to have contracted by 1.5% in Quarter 1 (Jan to Mar) 2021 (Figure 1). The level of GDP in the UK is now 8.7% below where it was prior to the pandemic at the end of 2019. Compared with the same quarter a year ago, when the initial economic impacts of the coronavirus (COVID-19) pandemic began to show, the UK economy fell by 6.1%.

Nominal GDP fell by 0.1% in Quarter 1 2021. Following two quarters of decline, the implied deflator increased by 1.4% in Quarter 1 2021. Compared with the same quarter a year ago, the implied GDP deflator increased by 4.8%, mainly reflecting an increase in the implied price change of government consumption. 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.

Several countries have published first estimates of GDP for Quarter 1 2021, including the United States, Germany, France, Italy and Spain. Real GDP is estimated to have increased by 1.6% in the US and 0.4% in France in Quarter 1 2021, while there were contractions in real GDP in Germany, Spain and Italy in Quarter 1 2021. The level of real GDP in each of these countries remains below where it was before the effects of the coronavirus pandemic to a varying extent (Figure 2). Real GDP in the US has almost recovered to its levels before the pandemic.

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. Except for the US where nominal GDP has surpassed its level before the pandemic, nominal GDP in these countries remains below where it was at the end of 2019.

The extent of these cumulative falls has not been uniform across countries. One reason for this is 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.

More information on the international comparability of GDP estimates can be found in International comparisons of GDP during the coronavirus (COVID-19) pandemic.

Services and production output contracted in Quarter 1 (Jan to Mar) 2021, while construction output increased.

Services

In Quarter 1 2021, services output decreased by 2.0% and is now 8.7% below Quarter 4 2019 levels. The largest contributor to this fall was from the education sector, with strong contributions from accommodation and food services, and the wholesale and retail sector (Figure 4).

The 11.8% fall in education output in Quarter 1 2021 reflects the low level of school attendance in January and February because of the closure of schools as part of the government response to the coronavirus (COVID-19) pandemic. School attendance improved in March, when schools in some areas of the UK began reopening.

Accommodation and food services fell by 18.2%, reflecting the impact of coronavirus restrictions that forced the closure of non-essential establishments such as hotels and restaurants. The coronavirus restrictions also impacted the wholesale and retail trade sector, which fell by 5.9%. Other personal service activities, which includes hairdressers, fell by 15.8% as coronavirus restrictions impacted this customer-facing sector.

Health was one of the few service sectors that experienced a pickup in Quarter 1 2021, with a 1.8% increase, reflecting the inclusion of the NHS Test and Trace service and coronavirus (COVID-19) vaccination adjustments. There is more information on health and education estimates in Quarter 1 2021 in Section 4: Expenditure, including adjustments to more fully capture health services such as the NHS Test and Trace service.

Production

Production output decreased by 0.4% in Quarter 1 2021, mainly because of a 0.7% fall in manufacturing (Figure 5). In comparison with levels before the pandemic, production is now 3.6% lower while manufacturing is 3.4% below Quarter 4 2019 levels.

The fall in manufacturing output in the quarter was driven by the 8.5% decrease in manufacturing of transport equipment, partially offset by a 5.6% increase in manufacturing of pharmaceutical products. According to the latest Bank of England Agents’ Summary of Business Conditions, the fall in manufacturing output was partly because of “the unwinding of stockbuilding that had taken place in late 2020 ahead of new trading arrangements with the EU coming into effect, and freight delays that had resulted in materials shortages”.

After a 3.8% fall in Quarter 4 2020, mining and quarrying continued to fall in Quarter 1 2021 by 2.5%.

Construction

In Quarter 1 2021, construction output increased by 2.6%. In comparison with Quarter 4 2019, construction industry output is still 3.4% below the levels before the pandemic.

The quarterly increase is mainly because of a 5.8% increase in March 2021, which was especially noticeable in private housing (both new work and repair and maintenance) and private commercial new work.

Anecdotal evidence received from survey returns for March 2021 suggested increased new work, delayed projects returning to sites, and a general increase in demand and confidence across the industry, as well as unusually warm weather, were contributing factors to the large monthly increase in construction output.

As highlighted by the March IHS UK Construction PMI, output was driven by “mobilisation of delayed projects, especially in areas such as hospitality, leisure, and office development”, as well as “greater spending on residential construction work and rising new home sales

In Quarter 1 (Jan to Mar) 2021, there was a decline in household consumption expenditure and gross capital formation (Figure 6). The increase in real government expenditure was driven by public administration and defence and health, which more than offset the fall in spending on education given school closures. UK trade contracted further in Quarter 1 2021, with falls both in imports and exports of goods and services.

Household consumption

Household consumption decreased by 3.9% in Quarter 1 2021, following a 1.7% contraction in the previous quarter. In comparison with levels before the pandemic, household consumption is now 12.8% lower than in Quarter 4 (Oct to Dec) 2019.

In Quarter 1 2021, spending in restaurants and hotels fell by 26.4% because of the coronavirus (COVID-19) restrictions in place during the quarter. These restrictions, which included the closure of non-essential stores, impacted negatively on retail sales, particularly in January 2021. Spending on transport has also been affected by the restrictions on mobility, falling by 15.2% in Quarter 1 2021.

The latest data on credit and debit card spending in the UK shows that, despite recovering throughout the quarter, spending at the end of March 2021 was still 13% below the levels before the pandemic, with social expenses around 30% lower. This reflects the closure of bars and restaurants and the impact of the pandemic on limiting social events.

Gross capital formation

In Quarter 1 2021, gross fixed capital formation (GFCF) decreased by 2.3%, mainly because of a 51.8% fall in transport equipment. Business investment fell by 11.9% in the quarter and is now 18.4% below the levels before the pandemic (Figure 7).

According to the Bank of England Agents’ Summary of Business Conditions, investment intentions are still weak despite coronavirus (COVID-19) vaccination and the government plan to ease restrictions, as “considerable caution remains about the strength of a future recovery”.

During Quarter 4 (Oct to Dec) 2020, there was evidence of some stockpiling taking place in advance of the end of the EU exit transition period, which translated into a £1.5 billion increase in inventories, mainly on finished manufacturing goods.

In Quarter 1 2021, finished manufacturing goods, as well as retail, continued experiencing an increase in inventories. This is likely caused by several factors, including late arrivals because of port issues at the end of the previous quarter, build-up because of slow economic activity in the quarter, and increases in stock in anticipation of the reopening of stores. Despite the increase in these sectors, the unaligned inventories data show a decrease of £0.8 billion in stocks being held by UK companies in Quarter 1 2021, mainly driven by mining and quarrying (Table 2).

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.

Consumption of government goods and services

In Quarter 1 2021, government consumption increased by 2.6%. Nominal government consumption in health increased by 1.4% in Quarter 1 2021. This has been partly reflected in a volume increase of healthcare services, mainly because of the NHS Test and Trace service and COVID-19 vaccination.

It should be noted that while government final consumption expenditure in nominal terms includes spending on the NHS Test and Trace service and COVID-19 vaccination, such activities are not captured within our source data for government final consumption expenditure in volume terms. We have therefore added NHS Test and Trace and COVID-19 vaccination adjustments of £7,500 million to our volume measure in Quarter 1 2021, of which £5,600 million is in relation to the NHS Test and Trace service and £1,900 million is in relation to COVID-19 vaccination.

The consumption of education services fell by 11.6% in Quarter 1 2021, following a 9.9% increase in the previous quarter. This reflects the fall in attendance in January and February because of the closure of schools in response to the coronavirus pandemic and the extent to which remote learning is considered an effective substitute for in-person teaching. Detailed information on our approach to measuring education is included in our latest Coronavirus and the impact on measures of UK government education output publication.

Adjustments for NHS Test and Trace and coronavirus (COVID-19) vaccination in the UK

Adjustments have been applied to the data for the impact from the NHS Test and Trace service and COVID-19 vaccination, using updated quarterly government data in order to reflect the growth in the programmes and their impact on the economy. The volume adjustment for Quarter 1 2021 is £7,500 million (with a split of £5,600 million for NHS Test and Trace and £1,900 million for COVID-19 vaccination). The equivalent adjustment for Quarter 4 2020 was £4,500 million and £1,000 million for Quarter 3 2020.

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 service 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 vaccination, which may lead to some revisions to the industry distribution of these activities.

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 deploy vaccines in England; available testing and vaccination data and estimated imports. These are early estimates that will be refined when a new method is introduced later in 2021.

Net trade

The UK trade balance improved in Quarter 1 2021, recording a deficit of 0.5% of nominal GDP (Figure 8). Imports of goods fell by 15.6%, mainly driven by falls in machinery and transport, miscellaneous manufactures such as clothing, and medical and pharmaceutical products. Exports of goods fell by 11.6%, mainly because of decreases in fuels, chemicals, and miscellaneous manufactures.

The decline in trade in Quarter 1 2021 is likely a consequence of previous stockpiling in preparation for the end of the EU exit transition period, as well as the ongoing impact of the coronavirus pandemic.

Services imports experienced an 8.1% decrease, driven by other business services as well as intellectual property. For services exports, the 2.2% fall reflects declines in insurance, intellectual property, and other business services.

Nominal gross domestic product (GDP) fell by 0.1% in Quarter 1 (Jan to Mar) 2021 and remains 2.9% below its level before the pandemic in Quarter 4 (Oct to Dec) 2019 (Figure 9). Compensation of employees (CoE) rose by 0.1% in Quarter 1 2021, driven by a 0.5% increase in wages and salaries. Meanwhile, employers’ social contributions fell by 1.8% in Quarter 1 2021.

Taxes fell by 1.2% in Quarter 1 2021 while subsidies increased by 11.4%. The quarterly decline in taxes in Quarter 1 2021 reflects a fall in revenues from hydrocarbon oil (Fuel Duty) while the quarterly increase in subsidies mainly reflects rising demand for government support, with increases in subsidy payments related to the Coronavirus Job Retention Scheme (CJRS) and the Small Business Grants Fund (SBGF).

According to the Business Insights and Conditions Survey (BICS) the share of businesses temporarily closed doubled between December 2020 and January 2021 to approximately one in four. As a result of these temporary business closures, the proportion of the workforce on furlough rose from 13.7% in mid-December 2020 to 19.9% in late January 2021. The proportion of businesses applying for and receiving government support grants also increased in Quarter 1 2021 according to BICS.

Gross operating surplus (GOS) of corporations increased by 2.3% in Quarter 1 2021, with GOS of private non-financial corporations increasing by 2.9%. However, this mainly reflects the alignment adjustment that is applied to this component for the purpose of balancing the income estimate of GDP for this quarter (Table 3). When the alignment adjustment is removed, GOS of private non-financial corporations increased by 0.5%.

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 gross domestic product (GDP) growth.

Chained Volume Measure

Data in chained volume measures within 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 year.

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, there are no revisions outside of Quarter 1 (Jan to Mar) 2021 in this publication.

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 – 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.

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). This is because quarterly GDP is a balanced measure of the three approaches and the output approach focuses solely on growth in gross value added and output as a proxy for 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 quarterly national accounts data tables, 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. No balancing adjustments were applied in Quarter 1 2021.

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 1 (Jan to Mar) 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.