GDP first quarterly estimate, UK: July to September 2022

• The first quarterly estimate of UK gross domestic product (GDP) shows an estimated fall of 0.2% in Quarter 3 (July to Sept) 2022.

• Monthly estimates published today (11 November 2022) show that GDP fell by 0.6% in September 2022 which was affected by the bank holiday for the State Funeral of Her Majesty Queen Elizabeth II, where some businesses closed or operated differently on this day.

• In output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in Quarter 3 2022, including falls in all 13 sub-sectors of the manufacturing sector.

• In expenditure terms, real household expenditure fell by 0.5% in Quarter 3 2022, while there were also large positive movements in international trade flows in the third quarter.

• Compared with the same quarter a year ago, the implied GDP deflator rose by 5.8%, primarily reflecting higher cost pressures faced by households.

The first quarterly estimate of UK gross domestic product (GDP) shows an estimated fall of 0.2% in Quarter 3 (July to Sept) 2022 (Figure 1). This follows a rise of 0.2% in the previous quarter. The level of quarterly GDP in Quarter 3 2022 is now 0.4% below its pre-coronavirus (COVID-19) level (Quarter 4 (Oct to Dec) 2019). Early estimates of GDP are subject to revision, for more information please refer to our Communicating the UK economic cycle methodology.

As published today (11 November 2022) in our GDP monthly estimate, UK bulletin, GDP is estimated to have fallen by 0.6% in September 2022. It is important to note that data for September 2022 are affected by the bank holiday for the State Funeral of Her Majesty Queen Elizabeth II, where some businesses closed or operated differently on this day. 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 September 2022 and to a lesser extent the Quarter 3 2022 estimates. For more information on our treatment of the September 2022 bank holiday within the monthly figures, please refer to our GDP monthly estimate, UK bulletin.

Nominal GDP is estimated to have increased by 1.0% in Quarter 3 2022 and is 8.4% higher than the same quarter a year ago.

The implied GDP deflator rose by 1.2% in Quarter 3 2022, which was primarily driven by higher price pressures for household consumption (2.3%). The 5.2% increase in import prices in part reflect the higher price for fuels, which was larger than the 1.1% increase in export prices.

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 economy, not just consumer spending. This includes the "implied" price of government consumption, which is the expenditure that is incurred by government in producing non-market goods and services. For further details, refer to our blog, Public services: measuring the part they play in the economy through the pandemic.

Compared with the same quarter a year ago, there was a 5.8% increase in the implied GDP deflator. This has been driven by strong rises for the price of household consumption (9.1%). There have also been large price movements in internationally traded goods and services (Figure 2), particularly in the imports of goods and services (21.2%). Imports get subtracted from GDP so a strong price rise in fuel imports acts to reduce the GDP implied deflator increase.

In Quarter 3 (July to Sept) 2022, services output was flat, production output fell by 1.5% and construction output rose by 0.6%. This reflected a slowing on the quarter for the services, production and construction sectors. Across all of output, there were increases in 10 of the 20 sub-sectors, while 9 sub-sectors saw a decrease on the quarter.

Services

There was no growth in services output produced in Quarter 3 2022, a slowing from the 0.2% increase in the previous quarter. Services output showed a monthly fall of 0.6% in September, which was affected by the additional bank holiday to mark the state funeral, following growths of 0.1% in August and 0.5% in July.

Figure 3 shows that there were falls in wholesale and retail trade, and other service activities. This likely reflects pressures from cost of living rises caused by energy price rises affecting household disposable incomes, as well as the additional bank holiday in September. The fall in wholesale and retail trade reflects falls in retail sales volumes, which fell by 1.9% in the three months to September 2022 as well as a fall of 1.4% in wholesale trade. Other service activities fell by 4.0% in Quarter 3 2022, reflecting a 7.0% fall in other personal service activities such as hairdressers. Overall consumer facing services saw a fall of 0.8% in Quarter 3 2022, a slowing from the 1.2% increase in the previous quarter.

These falls were offset by increases in education, and financial and insurance activities sub-sectors.

Production

Production output fell by 1.5% in Quarter 3 2022, which is the fifth consecutive quarter of contraction. The latest quarterly fall in production output was driven mostly by a fall in manufacturing output of 2.3%. All 13 of the manufacturing sub-sectors saw falls in quarterly output. The largest negative contribution came from the manufactures of basic metals and metal products, and manufactures of chemicals and chemical products (Figure 4). As reported in our GDP monthly estimate, UK: August 2022 bulletin, there were mixed comments from manufacturers with some firms suggesting shortages of supplies, while others reported these challenges were easing.

Construction

Construction output rose by 0.6% in Quarter 3 2022, a slowdown from the previous quarter. The latest rise was driven by increases in new work orders. However, construction firms continue to face challenges. As reported in our Construction output in Great Britain monthly bulletin, there is anecdotal evidence to suggest continued price pressures from construction inputs and products, labour market shortages and challenges to recruiting new staff. Further, earlier in the quarter, businesses reported challenging working conditions because of the heat and record-breaking temperatures. Further detail on construction growth rates can be found in our Construction output in Great Britain bulletin.

Expenditure fell by 0.2% in Quarter 3 (July to Sept) 2022, which was driven by a fall in private consumption (Figure 5). There were also large movements in international trade flows in the third quarter, including that of non-monetary gold, which is particularly volatile. Figure 6 also shows that there were large price movements in internationally-traded goods and services in Quarter 3 2022, particularly for imports. Further, early estimates show that businesses were de-stocking their levels of inventories in the third quarter, which contributed to the overall fall in expenditure.

Private consumption

Within private consumption, real household expenditure fell by 0.5% in Quarter 3 2022, which was driven by falls in clothing and footwear, household goods and services, household furniture and equipment, communication, and food and transport. In current price terms, household expenditure rose by 1.7% in Quarter 3 2022, highlighting the recent inflationary pressures on the value of this spending. The implied price of household expenditure increased by 9.1% when compared with Quarter 3 last year. This is broadly consistent with the rise in the consumer prices index including owner occupiers' housing costs (CPIH), which recorded a rise of 8.8% in the year to September 2022.

Consumption of government goods and services

Real government consumption expenditure rose by 1.3% in Quarter 3 2022. The latest quarterly boost in government expenditure was driven by rises in central government, particularly for public administration and defence. Health consumption was flat on the quarter as increases in non-coronavirus (COVID-19) health activity was offset by a decline in coronavirus activities (including testing and vaccinations), despite the implementation of the autumn booster vaccine campaign.

Gross capital formation

Within gross capital formation, gross fixed capital formation (GFCF) increased by 2.5% in Quarter 3 2022, rebounding from a 1.4% fall in Quarter 2 2022. The increase was mainly driven by a boost in government investment of 7.6% in Quarter 3 2022. Business investment fell by 0.5% in Quarter 3 2022 and remains below its pre-coronavirus pandemic level (Figure 6). The Bank of England's Agents' summary of business conditions - 2022 Q3 shows that in the latest quarter, there was a rise in firms reporting delaying investments because of uncertainty and tighter financial positions.

Excluding the alignment and balancing adjustments, early estimates show that inventories fell by £11.3 billion. The fall in inventories was driven by reductions particularly for retail and manufacturing industries. Annecdotal evidence shows that the retail sector showed reductions in stock because of reported lower demand resulting from cost of living pressures on disposable incomes. For manufacturing industries, these were affected by lack of availability in raw materials.

Net trade

Our trade estimates are primarily based on data collected by HM Revenue and Customs (HMRC). A recent HMRC trade data collection change affected our EU to Great Britain import statistics, which are under continued assessment for the impact of this change. We therefore recommend caution in interpreting movements across periods, as outlined in Impact of trade in goods data collection changes on UK trade statistics: 2021 to 2022 article and our latest UK trade bulletin. For more information, please see Section 9: Measuring the data.

The UK's trade deficit for goods and services improved to a 2.0% of nominal gross domestic product (GDP) in Quarter 3 2022 (Figure 7). 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 3.8% of nominal GDP in Quarter 2 2022.

Export volumes increased by 8.0% in the latest quarter, though much of this was driven by increases in unspecified goods because of non-monetary gold. There were also increases in the exports of machinery and transport equipment and fuels. Import volumes fell by 3.2% in the latest quarter, driven by falls in chemicals, material manufactures, miscellaneous manufactures, and unspecified goods.

There have also been large movements in the prices of internationally traded goods and services of late, particularly in import prices in Quarter 3 2022. An important driver has been the recent rises in the price of fuels, commodities and food, while there have also been falls in the exchange rate. Figure 8 shows the price movements have been much larger than the volume movements in Quarter 3 2022, particularly for imports. Import prices increased by 5.2% in Quarter 3 2022.

Nominal gross domestic product (GDP) rose by 1.0% in Quarter 3 (July to Sept) 2022, and increased by 8.4% relative to the same quarter last year. The quarterly rise was driven by growth in compensation of employees as well as contributions from taxes less subsidies and other income (Figure 9).

Compensation of employees increased by 1.2% in Quarter 3 2022, driven by a rise in wages and salaries of 1.7%, partially offset by a fall of 1.3% in employers' social contributions. Taxes less subsidies increased by 1.3% in Quarter 3 2022, with rises in both taxes and subsidies. The rise in taxes was driven by an increase in Value Added Tax (VAT), tobacco and air passenger duty. This was partially offset by falls in fuel duty. Elsewhere, there was a rise in other income driven by an increase in other gross operating surplus offset by a fall in mixed income.

Total gross operating surplus (GOS) of corporations increased by 0.3% in Quarter 3 2022, following a slowdown from the last two quarters. However, excluding the alignment adjustment, corporations GOS increased by 1.2% (Table 3).

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 (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 our Glossary of economic terms.

In line with the National Accounts Revisions Policy, data for Quarter 3 (July to Sept) 2022 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 -- 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 takes the lead because of the larger data content.

Quarterly GDP is a balanced measure of the three approaches, while the output approach focuses solely on growth in gross value added (GVA) and output as a proxy for GDP. Because of this there is a difference in 2020 and 2021 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. 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.

In this release, we have faced some additional uncertainty in renconciling the expenditure approach to GDP in particular on these EU trade flows because of recent changes in how some of these data are collated. 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 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). 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 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 mistakes 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 (July to Sept) 2022 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 blog, Why has UK GDP fallen so sharply in the pandemic?