GDP first quarterly estimate, UK: July to September 2021

• UK gross domestic product (GDP) is estimated to have increased by 1.3% in Quarter 3 (Jul to Sept) 2021 following the continued easing of coronavirus (COVID-19) restrictions.

• In output terms, the largest contributors to this increase were from hospitality, arts and recreation and health following the further easing of restrictions and reopening of the economy.

• The level of quarterly GDP is now 2.1% below where it was before the coronavirus pandemic at Quarter 4 (Oct to Dec) 2019; we also published an article, which further examines the comparisons to pre-coronavirus pandemic levels between quarterly and monthly GDP estimates.

• In Quarter 3 2021, household consumption made the largest contribution to expenditure; there was a fall in underlying inventories, likely reflecting some of the recent supply chain challenges, and a negative contribution from net trade.

UK gross domestic product (GDP) is estimated to have increased by 1.3% in Quarter 3 (Jul to Sept) 2021 (Figure 1). This follows the 5.5% increase in the previous quarter, where there was an easing in many of the coronavirus (COVID-19) restrictions. The level of real quarterly GDP in the UK is now 2.1% below where it was before the coronavirus pandemic at the end of 2019.

Monthly estimates published today show GDP improved across the three months in Quarter 3. Revised estimates show that GDP fell in July by 0.2% and saw a modest pickup in August (0.2%). There was more of a rebound in September (0.6%), driven by services output growth (0.7%), as human health activities increased strongly.

For more information, please see the Monthly GDP release, and comparisons to pre-coronavirus pandemic levels between quarterly and monthly GDP estimates.

Nominal GDP rose by 1.4% in Quarter 3 2021 and is now 3.2% above its Quarter 4 (Oct to Dec) 2019 levels. 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 increased by 0.2% in the third quarter of 2021, driven by a rise in the household (0.8%) implied deflator, partially offset by a fall in the government implied deflator (-0.7%). Compared with the same quarter a year ago, the implied GDP deflator rose by 0.5%. Similarly, this reflected an increase in the household implied deflator (2.4%) partially offset by a fall in the government implied deflator (-10.7%).

Several countries have published first estimates of real GDP for Quarter 3 2021. France and Italy had the largest increases in the third quarter of 2021, reflecting the reopening of the economies and easing of restrictions. However, these two countries have yet to recover to their pre-coronavirus pandemic levels of GDP. The United States is the only G7 economy to have recovered to above pre-coronavirus pandemic levels.

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

Services and production output rose in Quarter 3 (Jul to Sept) 2021 as coronavirus (COVID-19) restrictions continued to ease to varying degrees in England, Scotland and Wales. Construction output, however, fell in Quarter 3 2021.

Services

There was a rise in services output of 1.6% in Quarter 3 2021, having grown by 6.5% in Quarter 2 (Apr to June) 2021. Services output has almost recovered to pre-coronavirus pandemic levels and is now 0.7% below Quarter 4 (Oct to Dec) 2019 levels.

Accommodation and food services rose by 30% in Quarter 3 2021, while the arts, entertainment and recreation services increased by 19.6%, following the relaxation of almost all coronavirus public health restrictions on 19 July 2021, including the re-opening of indoor hospitality by varying degrees in England, Scotland and Wales. Consumer facing services output increased by 2.2% in Quarter 3 2021.

Human health activities increased by 3.5% in Quarter 3 2021, reflecting a large increase in GP face-to-face consultations and activities of other practice staff in clinics.

Administrative and support activities growth was driven by a pick up in travel agency, tour operator and other reservation service and related activities, though activity remains historically low.

Education output remained broadly similar with a rise of 0.4% in Quarter 3 2021, reflecting lower school attendances because of self-isolation. It remains 4.2% below pre-coronavirus pandemic levels.

The 2.5% fall in wholesale and retail trade output was driven by weak consumer spending. The retail sales index shows that sales volume fell across Quarter 3 2021, falling in July (-2.9%), August (-0.6%) and September (-0.2%). Automotive fuel sales volumes rose by 2.9% in September because of a spike in demand at the end of September, caused by concerns of fuel shortages. There was a slowdown in car sales, though, driven by microchip shortages and supply chain disruptions, as further explained in the monthly GDP bulletin.

Production

Production output rose by 0.8% in Quarter 3 2021 and is now 2.1% below its pre-coronavirus pandemic levels. The largest contribution to the quarterly increase was from mining and quarrying, with output rising by 26.3% in Quarter 3 2021 following three consecutive quarters of contraction. The increase is in part because of the reopening of sites that had previously been temporarily closed for planned maintenance.

There was a 0.3% decline in manufacturing output in Quarter 3 2021. The manufacture of transport equipment saw a 0.9% fall, which partly reflects a sharp decline of 8.2% in the manufacture of motor vehicles in September 2021, the largest fall since May 2021. There was also a fall in the sales and repair of motor vehicles (13.3%) in September 2021, the largest fall since January 2021, following a revised 0.1% fall in August 2021. The largest contribution to the fall of manufacturing output in Quarter 3 2021 was from the manufacture of rubber and plastics products, and other non-metallic mineral products, while the manufacture of basic pharmaceutical products and pharmaceutical preparations made the largest positive contribution.

Construction

Construction output fell by 1.5% in Quarter 3 2021, after four consecutive quarterly increases. There was a fall across all sub-sectors of construction reflecting challenges faced by the construction industry from rising input prices and delays to the availability of construction products, as explained in the monthly GDP bulletin.

There was a quarterly increase in most of the main expenditure components, with the largest contribution from household consumption (Figure 5). Underlying inventories fell (Table 2), likely reflecting some of the recent supply chain challenges. There was a negative contribution from net trade in Quarter 3 (Jul to Sept) 2021.

Household consumption

In Quarter 3 2021, household consumption increased by 2.0%, reflecting the continued easing of coronavirus (COVID-19) restrictions. In comparison with levels before the coronavirus pandemic, household consumption is now 4.4% lower than in Quarter 4 (Oct to Dec) 2019. The largest contributions were from spending on restaurants and hotels (30.9%) and transport (4.5%), which was partly offset by household goods and services (-9.6%), and clothing and footwear (-7.7%).

Consumption of government goods and services

In Quarter 3 2021, real government consumption increased by 0.9%, mainly driven by increases in health. The consumption of health services increased by 3.4% in Quarter 3 2021 as there was strong growth in non-COVID-19 health activity, in particular with General Practice (GP) appointments. Since Quarter 2 (Apr to June) 2020, the Office for National Statistics (ONS) have used data from the Appointments in General Practice bulletin, published by NHS Digital, to inform our estimates of primary care services. These data incorporate the full range of services offered by GP practices in England. Excluded from these numbers are any activity relating to GP surgery-based COVID-19 vaccinations; a recently introduced measure captures the entire COVID-19 vaccination programme.

Growth in health services was further boosted by NHS Test and Trace and the COVID-19 vaccination programme. Our monthly GDP bulletin provides details on the NHS Test and Trace and COVID-19 vaccination activity. Information for how we estimate this type of non-market activity can be found in the accompanying article.

Elsewhere, the consumption of education services marginally increased by 0.1% in Quarter 3 2021.

Gross capital formation

Gross fixed capital formation increased by 0.8% in Quarter 3 2021, and government investment rose by 4.3%. There was a modest 0.4% increase in business investment in Quarter 3 2021, which remains 12.4% below its pre-coronavirus pandemic levels. The Bank of England’s Decision Maker Panel survey found that businesses estimated that their capital expenditure in Quarter 3 2021 would be 11% lower than normal because of the coronavirus pandemic.

The underlying change in inventories was a fall of £2.2 billion in Quarter 3 2021. This was driven by falls in inventories for Other industries (including motor trades and construction), with reported falls in the stock of new cars because of the semi-conductor shortage and new cars availability. Retail trade also saw falls in inventories, with some companies reporting lower than usual stock at this time of year because of supply chain issues.

We previously referred to practical challenges in balancing GDP during the pandemic. For these reasons, rather than forcing a GDP balance for expenditure by heavily adjusting the expenditure components, we have decided to show the best estimate of each underlying component of expenditure at this stage.

In doing so, this means that the alignment adjustment, used to align expenditure to average GDP, is larger than normal (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 8: Measuring the data. Therefore, the unadjusted data can provide a better understanding of the change in the inventory position of businesses in the whole economy.

This approach preserves the component level movements and shows the level of challenge and uncertainty currently within the expenditure approach to GDP. Work will continue before the next GDP quarterly national accounts release with a focus on the expenditure approach to GDP. We will continue to review this over the coming months as and when more information becomes available.

Net trade

The UK’s trade balance fell to a deficit of -1.2% of GDP in Quarter 3 2021 (Figure 6), with net trade detracting from quarterly growth.

In volume terms, total exports fell by 1.9% in Quarter 3 2021, driven by a fall in exports of goods (-5.8%), particularly in unspecified goods, machinery and transport equipment, and material manufactures. The rise in service exports was driven by financial services, as well as other business services where GDP balancing adjustments have been applied.

Total import volumes saw a rise of 2.5% in Quarter 3 2021, with higher goods imports (particularly in fuels, unspecified goods and chemicals) partly offset by a fall in service imports in other business services, and telecommunications, computer and information services. Imports of travel services increased, reflecting summer holidays and some easing in international travel restrictions.

Nominal gross domestic product (GDP) rose by 1.4% in Quarter 3 (Jul to Sept) 2021 and remains above its level before the coronavirus (COVID-19) pandemic. This rise was driven by an increase in taxes less subsidies, compensation of employees, and gross operating surplus (GOS) (Figure 7).

Taxes in Quarter 3 2021 increased by 1.8%, primarily driven by increases in revenue from national non-domestic rates (NNDR) and a small rise in value-added tax (VAT). This increase in NNDR reflects the gradual reduction in business rates relief introduced in response to the coronavirus pandemic. There was also a marked 33.8% fall in subsidies, primarily driven by reduced payments through the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS).

Compensation of employees increased by 1.5% in Quarter 3 2021, driven by increases in wages and salaries (1.8%) and employers’ social contributions (0.4%), reflecting higher employers’ pension contributions.

Total GOS of corporations fell by 5.0% in Quarter 3 2021. 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). Excluding the alignment adjustment, GOS grew by 0.4%.

We previously referred to practical challenges in balancing GDP during the coronavirus pandemic. This in part reflects large government interventions in response to the pandemic in areas such as employment costs via the CJRS subsidy to businesses and the SEISS payment to the self-employed. These schemes, alongside various business grants, tax deferrals and the VAT rate cut for the hospitality sector, have all made the measurement of income more challenging across 2020 and 2021.

For these reasons, rather than forcing a GDP balance for income by adjusting the income components, we have decided to show the best estimate of each underlying component of income at this stage.

In doing so, this means that the alignment adjustment, used to align income to average GDP, is larger than normal (Table 3). This both preserves the component level movements and shows the current level of challenge and uncertainty within the income approach to GDP. Work will continue before the GDP quarterly national accounts release to understand what is causing the relative strength within the income approach to GDP. We will continue to review this over the coming months as and when more information becomes available, as previous quarters are open to revision.

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 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.

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

In line with the National Accounts Revisions Policy, data for Quarter 3 (Jul to Sept) 2021 are published for the first time, with no revision to previous quarters.

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 focussing solely on growth in gross value added (GVA) 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 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 the GDP first quarterly estimate 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. The balancing adjustments applied in this quarter are shown in Table 4. The resulting series should be considered accordingly. There are also balancing adjustments applied to prior quarters as part of the Quarterly National Accounts release on 30 September 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 3 (Jul to Sept) 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.

System of National Accounts consultations

As part of an update to the System of National Accounts, the United Nations (UN) are in the process of consulting on several areas being considered for improvement. Previous and live consultations can be found on the UN Statistics Division website. If you would like to discuss any of these consultations with the Office for National Statistics (ONS), please contact us at sna.consultations@ons.gov.uk. Bodies outside the UK National Statistical System are also free to respond to the consultations themselves.