GDP first quarterly estimate, UK: July to September 2023

• UK gross domestic product (GDP) is estimated to have shown no growth in Quarter 3 (July to Sept) 2023, following an increase of 0.2% in the previous quarter.

• GDP is estimated to have increased by 0.6% in Quarter 3 2023 compared with the same quarter a year ago.

• In output terms there was a 0.1% fall in the services sector, which offset a 0.1% increase in construction output and broadly flat output in the production sector.

• In expenditure terms, an increase in the volume of net trade was offset by falls in business investment, household spending and government consumption.

• Compared with the same quarter a year ago, the implied GDP deflator rose by 7.9%, largely reflecting a fall in the implied price of imports, which contributes positively to the implied GDP deflator.

UK gross domestic product (GDP) is estimated to have shown no growth in Quarter 3 (July to Sept) 2023, following an increase of 0.2% in the previous quarter (Figure 1). Compared with the same quarter a year ago, GDP is estimated to have increased by 0.6% in Quarter 3 2023. In Quarter 3 2022, there was an additional bank holiday for the State Funeral of Her Majesty Queen Elizabeth II and many businesses closed or operated differently on this day. This should be considered when interpreting seasonally adjusted movements involving September 2022 and, to a lesser extent, Quarter 3 2022.

Early estimates of GDP are subject to revision (positive or negative). For more information, please refer to our Communicating the UK economic cycle methodology. Our previous publication on 29 September 2023 included data consistent with the UK National Accounts, The Blue Book: 2023, which was published on 31 October 2023. We also published our GDP revisions in Blue book: 2023 article alongside this. 

Our GDP Monthly estimates published today (10 November 2023) show that GDP is estimated to have increased by 0.2% in September 2023, following growth of 0.1% in August (revised down from 0.2%), and an unrevised 0.6% fall in July 2023.

Nominal GDP is estimated to have increased by 1.4% in Quarter 3 2023, following growth of 2.5% in the previous quarter.

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 1.4% in Quarter 3 2023, which was primarily driven by higher price pressures for gross capital formation as well as an easing in the implied price of imports, which contributes positively to the increase in the GDP implied deflator.

Compared with the same quarter a year ago, there was a 7.9% increase in the GDP implied deflator, unchanged from the previous quarter. Growth was driven by strong rises in the price of household consumption, though there was a slowing in the latest quarter in how much these prices have 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 (Figure 2).

In Quarter 3 (July to Sept) 2023 there was a 0.1% fall in the services sector, which offset a 0.1% increase in construction output and no growth in the production sector.

Services

Services output fell by 0.1% in Quarter 3 2023, following no growth in Quarter 2 (Apr to June) 2023. Figure 3 shows that there were falls in 8 out of the 14 subsectors, which offset increases in the other 6. Overall, consumer-facing services detracted from growth in Quarter 3 2023, falling by 0.7%.

The largest contributions to the fall were from a decline of 0.4% in real estate activities and a 1.2% fall in the transportation and storage subsector. Within real estate activities, the largest fall was in buying and selling, renting and operating of owned or leased real estate, which fell by 1.6%. Within transportation and storage, there were falls in five out of six of the industries.

The largest positive contribution to growth was from the professional, scientific and technical activities subsector, which grew by 0.6%, with the biggest increases in architectural and engineering activities; technical testing and analysis. The next largest positive contribution to growth was from arts, entertainment and recreation, which increased by 2.3%.

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

Production

There was no growth in production output in Quarter 3 2023, following growth of 1.2% in the previous quarter. Within production, growth in manufacturing; mining and quarrying; and electricity, gas, steam and air conditioning supply was offset by a fall in water supply; sewerage, waste management and remediation activities.

Manufacturing output increased by 0.1%, following growth of 1.9% in the previous quarter. There were increases in 7 out of the 13 subsectors (Figure 4), with the largest positive contribution from the manufacture of transport equipment that has seen four consecutive quarters of positive growth. Anecdotal evidence from the Society of Motor Manufacturers and Traders (SMMT) reported that car manufacturing for September 2023 was up 14.9% compared with the same month last year.

Elsewhere, mining and quarrying increased by 0.6% in the latest quarter driven by the extraction of crude petroleum and natural gas, while electricity, gas, steam and air conditioning supply increased by 0.4%.

Offsetting these increases, there was a fall, in water supply; sewerage, waste management and remediation activities, of 0.8% in the latest quarter.

Construction

Construction output rose by 0.1% in Quarter 3 2023, following growth of 0.3% in Quarter 2 (Apr to June) 2023. The growth in Quarter 3 2023 was driven by repair and maintenance, which grew by 0.7%. This growth was partially offset by a fall of 0.3% in new work.

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

There was a fall in business investment, household spending and government consumption in Quarter 3 (July to Sept) 2023, offset by an increase in the volume of international trade flows (Figure 5).

Household consumption

There was a fall of 0.4% in real household expenditure in Quarter 3 2023, following an increase of 0.5% in the previous quarter. This fall is in line with consumer-facing services in the output approach to measuring GDP, which fell by 0.7% in the latest quarter.

Within household consumption, the largest contributions to the fall in the latest quarter were from lower spending on miscellaneous goods and services (within this falls in social protection; jewellery, clocks and watches); transport (in particular air transport and water transport), and spending on food and non-alcoholic drink. Net tourism also contributed negatively to growth in the latest quarter. Information on how we measure net tourism is provided in our National Accounts articles: Treatment of tourism in the UK National Accounts article.

Consumption of government goods and services

Real government consumption expenditure fell by 0.5% in Quarter 3 2023 following an increase of 2.5% in the previous quarter. The fall in government consumption in the latest quarter mainly reflects lower spending on health and on education, which fell by 1.4% and 0.3%, respectively.

Within health, there was industrial action across the quarter where NHS England reported that in July 2023 65,557 appointments and procedures were cancelled because of the senior doctors' strike, and 101,977 acute inpatient and outpatient appointments were cancelled because of the industrial action by junior doctors. Further information is provided in our monthly GDP release.

Gross capital formation

Gross fixed capital formation (GFCF) is estimated to have fallen by 2.0%, following a rise of 0.8% in the previous quarter.

There was a fall of 4.2% in business investment in the latest quarter, with declines in investment in transport equipment; other machinery and equipment; and dwellings. The fall in business investment follows two quarters of strong growth of 4.1% in Quarter 2 (Apr to June) and 4.0% in Quarter 1 (Jan to Mar). In Quarter 2 there was a large increase in transport investment, in particular on aircraft, which saw an increase in imports from the United States in April 2023. In Quarter 1 we saw businesses bring investment forward in response to the super-deduction allowance expiring on 31 March 2023.

Excluding the alignment and balancing adjustments, early estimates show that inventories increased by £1.4 billion in Quarter 3 2023, following four quarters of destocking.

Net trade

The UK's trade deficit for goods and services was 0.7% of nominal gross domestic product (GDP) in Quarter 3 2023. However, there have been large movements in non-monetary gold over the last few quarters, which can be volatile. Excluding non-monetary gold, the trade deficit was 0.8% of nominal GDP in Quarter 3 2023 (Figure 6).

Export volumes increased by 0.5% in the latest quarter, following a fall of 0.9% in Quarter 2 2023. The increase was driven by a 2.8% rise in services exports, which offset a fall of 2.0% in goods exports.

The increase in services exports were driven mainly by other business services, with increases in services between affiliated enterprises; management consulting; and advertising, market research and public opinion polling services.

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. Elsewhere there were falls in miscellaneous manufactures; and machinery and transport equipment.

Import volumes fell by 0.8% in the latest quarter, following an increase of 2.2% in Quarter 2 2023. The decline in the latest quarter was driven by a 3.5% fall in goods imports, which offset a 4.2% increase in services imports.

The fall in goods imports were mainly driven by machinery and transport equipment, in particular in mechanical power generators; telecoms and sound equipment; and aircraft.

The increase in services imports were driven by growth in intellectual property; insurance and pension; and transportation.

Nominal gross domestic product (GDP) rose by 1.4% in Quarter 3 (July to Sept) 2023, following an increase of 2.5% in the previous quarter. The quarterly rise was driven by growth in taxes less subsidies, compensation of employees and other income.

In 2023, there has been additional challenge in balancing the income approach to measuring GDP reflected by the alignment adjustment, which is larger than normal (Table 3). This reflects the current challenges and uncertainties within the income approach, 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 approach to GDP, and we will continue to review this over the coming months as and when more information becomes available.

Compensation of employees increased by 1.0% in Quarter 3 2023 following an increase of 2.0% in the previous quarter. Growth was driven by a rise in wages and salaries of 1.4%, which offset a 1.1% fall in employers' social contributions. It is important to note that there is more uncertainty around the compensation of employees figures in this publication because of lower response rates in the Labour Force Survey. We have used additional information from Pay As You Earn Real Time Information to help inform the estimates.

Early estimates show that taxes less subsidies increased by 7.5% in Quarter 3 2023, driven by a 0.8% increase in taxes and a further 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 provided 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.

Total gross operating surplus (GOS) of corporations excluding the alignment adjustment, increased by 0.1% (Table 3) with a small increase in financial corporations GOS offset by a decrease in private non-financial corporations GOS. Data content for this component is low at this stage in the GDP publication model. Within GOS of corporations there continues to be increased uncertainty around the full impacts of the Energy Bill Relief and Energy Price Guarantee schemes, which has been reflected in larger than normal alignment adjustments in 2023 (Table 3). More detail can be found in Section 11: Measuring the data.

Reaching the 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 our 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 positive or negative £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), 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.

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, in 2021, the use of Staged Customs Controls (SCC) 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. The UK government introduced full customs controls in January 2022, while July 2022 marked the first full month of data where delayed customs declarations submitted under SCC could not be included. Temporary arrangements still apply for imports of goods from Ireland to GB. In our Impact of trade in goods data collection changes on UK trade statistics: further update on Staged Customs Controls article published on 3 July 2023, we presented analysis on the impact of SCC on trade in goods data for imports from the EU to GB in 2022. We have previously adjusted for the impact of SCC and have published our Impact of trade in goods data collection changes on UK trade statistics: adjustments to 2022 EU imports estimates article providing a detailed breakdown of the impact of these adjustments. 

Office for Statistics Regulation (OSR) Revisions of estimates of UK GDP review  

As previously announced, The Office for Statistics Regulation (OSR) is undertaking a short review into the practices around the preparation and release of information about revisions to estimates of GDP. For more details please contact regulation@statistics.gov.uk.

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 (QMI) 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 tradeoff 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.