GDP first quarterly estimate, UK: January to March 2023

• The first quarterly estimate of UK real gross domestic product (GDP) shows that the economy increased by 0.1% in Quarter 1 (Jan to Mar) 2023.

• Monthly estimates published today (12 May 2023) show that GDP fell by 0.3% in March 2023, following an increase of 0.5% in January 2023 (revised up from 0.4% in the previous publication) and no growth in February 2023.

• In output terms, the services sector grew by 0.1% on the quarter driven by increases in information and communication, and administrative and support service activities; elsewhere, the construction sector grew by 0.7% while the production sector grew by 0.1%, with a 0.5% growth in manufacturing. 

• In expenditure terms, household consumption showed no growth on the quarter, while there was a positive contribution from gross fixed capital formation.

• Compared with the same quarter a year ago, the implied GDP deflator rose by 6.3% in Quarter 1 2023, an easing from 7.3% in Quarter 4 (Oct to Dec) 2022.

The first quarterly estimate of UK real gross domestic product (GDP) shows that the economy increased by 0.1% in Quarter 1 (Jan to Mar) 2023 (Figure 1). This follows growth of 0.1% in the previous quarter. The level of quarterly GDP in Quarter 1 2023 is now 0.5% below its pre-coronavirus (COVID-19) level (Quarter 4 2019).

Early estimates of GDP are subject to revision. For more information please refer to our Communicating the UK Economic Cycle methodology. We have faced additional challenges in estimating the income measure of GDP in this quarter, more detail can be found in Section 5: Income and Section 8: Measuring the data.

As published today (12 May 2023) in our GDP monthly estimate, UK bulletin, GDP fell by 0.3% in March 2023, following an upwardly revised increase of 0.5% in January 2023 and no growth in February 2023.

Nominal GDP is estimated to have increased by 1.0% in Quarter 1 2023 and was 6.6% 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 implied GDP deflator, see our Measuring price changes of the UK national accounts: February 2023 article.

The implied price of GDP rose by 0.9% in Quarter 1 2023, which was primarily driven by higher price pressures for household consumption (1.2%). The implied price of GDP was 6.3% higher in Quarter 1 2023 than the same quarter a year ago, an easing from growth of 7.3% in the previous quarter. In the year to Quarter 1 2023, growth has been driven by strong rises for the price of household consumption, though there was a slowing in how much these prices increased. There have also been large price movements in internationally traded goods and services, where there was a slight easing in these inflationary pressures (Figure 2). Further information on the price movements of trade is discussed in our article, The purchasing power of GDP, UK: 2022.

In Quarter 1 (Jan to Mar) 2023, there were increases in all main sectors where services output and production output both increased by 0.1%, and construction output rose by 0.7%. 

Services

Services output rose by 0.1% in Quarter 1 (Jan to Mar) 2023, following a 0.1% increase in Quarter 4 2022. Figure 3 shows that there was a mixed performance for the service sub-sectors in the first quarter, with growth in 7 out of the 14 sub-sectors offset by falls in the other 7. Overall, consumer-facing services detracted from growth in Quarter 1 2023, falling by 0.4% while all other services increased by 0.2%.

The largest positive contribution to growth was from the information and communication sub-sector, which grew by 1.2%, with increases in computer programming, consultancy and related activities, and telecommunications. The second largest positive contribution to growth was from administrative and support service activities, which increased 1.3%.

However, these increases were partially offset by declines in education (0.7%), health (0.5%), public administration and defence (0.7%), and transport and storage (1.0%). These are areas that saw industrial action take place across the quarter. While some of the direct impact of the strikes in these industries can be seen in the profile of the quarterly changes in output, we are not able to isolate the impact of these strikes from other factors across the wider economy. However, there was anecdotal evidence to suggest industrial action had an impact across a wide range of industries. For further information, please see our GDP monthly estimate, UK bulletin.

Production

Production output increased by 0.1% in Quarter 1 2023. This follows no growth in the previous quarter and five consecutive falls before that.

The increase in production output in the latest quarter was mainly driven by an increase of 0.5% in manufacturing. There were increases in 8 out of the 13 sub-sectors, with the largest positive contribution from the manufacture of basic metals and metal products, and the manufacture of computer, electronic and optical products (Figure 4). These falls were partially offset by decreases in the manufacture of basic pharmaceutical products and pharmaceutical preparations.

There was no growth in electricity, gas, steam and air conditioning supply in the latest quarter, with demand partly affected by unseasonal higher than average temperatures during February 2023, as shown in the Met Office's February 2023 Monthly Weather Report (PDF, 4,847KB).

Elsewhere, there was a decline of 5.0% in mining and quarrying in the first quarter of 2023, driven by falls in the extraction of crude petroleum and natural gas, and mining support services. This is the fourth consecutive quarterly fall in mining and quarrying.

Construction

Construction output rose by 0.7% in Quarter 1 2023, the sixth consecutive quarter of positive growth. The growth in Quarter 1 2023 was driven by repair and maintenance, which grew by 4.9% with all three subsectors growing on the quarter. This growth was partially offset by a fall of 1.9% in new work.

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

There was a small increase in private consumption in Quarter 1 (Jan to Mar) 2023, while there was also higher gross fixed capital formation on the quarter (Figure 5). However, early estimates show that businesses were destocking their levels of inventories in the first quarter of the year, while there was a decrease in the volume of net trade in Quarter 1 2023.

Private consumption

Within private consumption, there was no growth in real household expenditure in Quarter 1 2023, following 0.2% growth in the previous quarter, as real household incomes continue to be squeezed by high inflation. There were increases in expenditure on recreation and culture, communications, and housing and clothing in the latest quarter. These were offset by falls in transport, and alcohol and tobacco. Net tourism is a significant downward driver of national expenditure.

In current price terms, household expenditure rose by 1.2% on the quarter, as recent inflationary pressures increased the nominal value of this spending. The implied price of household expenditure increased by 9.4% when compared with Quarter 1 2022. This was an easing in inflationary pressures from the 10.3% in the year to Quarter 4 (Oct to Dec) 2022, 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 fell by 2.5% in Quarter 1 2023. This fall reflects declines in nominal spending on public administration and defence in the quarter. There were also falls in the volumes of education and health, where there were weaker volumes as a result of industrial action taking place in this quarter. However, we are not able to isolate the impact of these strikes from other factors across the wider economy.

Gross capital formation

There was a pickup in gross fixed capital formation (GFCF), which increased by 1.3% in Quarter 1 2023. This reflected increases in business and government investment on the quarter, partially offset by a fall in dwellings investment. Business investment increased by 0.7% in Quarter 1 2023 and remains 1.4% below its pre-coronavirus (COVID-19) pandemic levels (Quarter 4 2019).

Elsewhere, there was a 9.7% increase in government investment in Quarter 1 2023, driven by higher investment in new and existing buildings. Early estimates of investment can be prone to revision, including nominal and real estimates of expenditure.

Excluding the alignment and balancing adjustments, early estimates show that inventories fell by £1.8 billion (Table 2). The fall in inventories was driven by retail and wholesale industries. 

Net trade

HM Revenue and Customs (HMRC) implemented a data collection change affecting data on goods exports from Great Britain (GB) to the EU in January 2021, and data on goods imports from the EU to GB 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.

Separately, when the requirement for customs declaration was introduced for imports of goods to GB 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 GB. It is likely that some double counting occurred, with imports in the second half of 2021 recorded by the Intrastat Survey, then some appearing again on customs declarations in the first half of 2022. We published an Impact of trade in goods data collection changes on UK trade statistics: update on Staged Customs Controls article on 17 February 2023. The article summarised the latest analysis on the potential impact of SCC in the first six months of 2022 by comparing Office for National Statistics (ONS) estimates of UK goods imports from the EU with Eurostat estimates of EU goods exports to the UK. We are continuing to work with HMRC to investigate the impact of SCC and consider any adjustments that may be required. We aim to provide a further update on our investigations into the impact of SCC on goods imports from the EU in June 2023. Temporary arrangements still apply for imports of goods from Ireland to GB. Temporary arrangements still apply for imports of goods from Ireland to GB.

The UK's trade deficit for goods and services further declined to 1.4% of nominal GDP in Quarter 1 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 2.3% of nominal GDP in Quarter 1 2023.

Export volumes fell by 8.1% in the latest quarter, driven by a fall of 12.9% in good exports as well as a 2.9% fall in services exports. The fall in good exports was mainly driven by large movements in non-monetary gold, however this series 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 telecommunications, computer and information services, and intellectual property all also contributing to the decrease.

Import volumes decreased by 7.2% in the latest quarter, driven by a 7.8% decrease in goods imports driven mainly by machinery and chemicals. The fall in machinery and equipment was driven by ships and cars, following strong growth in the previous quarter.

There was also a fall of 5.9% in services imports in the latest quarter, driven by other business services, telecommunications, and computer and information.

Nominal gross domestic product (GDP) rose by 1.0% in Quarter 1 (Jan to Mar) 2023 and increased by 6.6% relative to the same quarter last year. The quarterly rise was driven by growth in gross operating surplus, other income and compensation of employees, while taxes less subsidies detracted from growth (Figure 7).

Compensation of employees increased by 0.6% in Quarter 1 2023, driven by a rise in wages and salaries of 1.2% and partially offset by a fall of 2.4% in employers' social contributions. Early estimates suggest that the fall in employers' social contributions is because of the fact this is the first full quarter affected by the reversal in the national insurance increase, which had come into effect in April 2022. For more information, see the National Insurance increase reversed article published on GOV.UK.

Early estimates show that taxes less subsidies fell by 21.7% in Quarter 1 2023, driven by a large increase in subsidies because 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. 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. Data for Quarter 1 2023 is an initial indicative estimate, which will be revised over the coming months as firmer data become available.

Total gross operating surplus (GOS) of corporations increased by 10.8% in Quarter 1 2023. However, excluding the alignment adjustment, corporations GOS increased by 3.8% (Table 3), reflecting some of the uncertainty around recording the full impacts of the Energy Price Guarantee scheme. Data content for this component is low at this stage in the GDP publication model. This is reflected in the larger than normal Quarter 4 (Oct to Dec) 2022 and Quarter 1 2023 alignment adjustment (Table 2). More detail can be found in Section 8: Measuring the data.

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 (CVM) 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

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

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

In line with the National Accounts Revisions Policy, data for Quarter 1 (Jan to Mar) 2023 are published for the first time, with no revision to previous quarters.

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 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. 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 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 our GDP first quarterly estimate 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 article, Recent challenges of balancing the three approaches of GDP. 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), reflecting 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 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 our 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 2023 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.

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