GDP first quarterly estimate, UK: October to December 2019

• UK gross domestic product (GDP) in volume terms was flat in Quarter 4 (Oct to Dec) 2019, following revised growth of 0.5% in Quarter 3 (July to Sept) 2019.
• When compared with the same quarter a year ago, UK GDP increased by 1.1% to Quarter 4 2019; down from a revised 1.2% in the previous period.
• Services and construction contributed positively to growth in the output approach to GDP in Quarter 4 2019, while production output contributed negatively to growth.
• Private consumption, government consumption and net trade contributed positively to growth in the expenditure approach to GDP, while gross capital formation contributed negatively to growth in Quarter 4 2019.
• GDP was estimated to have increased by 1.4% between 2018 and 2019 slightly above the 1.3% growth seen between 2017 and 2018.

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 and the income approach. Further information on all three approaches to measuring GDP can be found in the Short guide to national accounts (PDF, 317KB).

In producing a balanced estimate of GDP, we reconcile information on the output, expenditure and income measures of GDP. In our first quarterly estimate, output tends to paint a more reliable picture of what is happening overall in the economy, and so balancing adjustments are applied to the expenditure and income components of GDP where required to align to output; these tend to be applied to components where data content is comparatively weak, or estimates are prone to revision.

There were increased challenges around balancing the first estimate of GDP growth for Quarter 4 (Oct to Dec) 2019, in part because of heightened uncertainty around the impact of the UK’s planned exit from the EU on the activity of businesses. This has been reflected in the adjustments that have been applied to the expenditure estimates. For this reason we recommend the breakdown of the expenditure approach to GDP is considered in the context of these adjustments. Further information on these adjustments is available in the Quality and methodology section.

Data in chained volume measures within this bulletin have had the effect of price changes removed (in other words, the data are deflated). The exception to this is income data, which are only available in current prices.

In line with the National Accounts Revisions Policy, revisions are open back to Quarter 1 (Jan to Mar) 2019 as part of this publication.

After EU withdrawal

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020.

After the transition period, we will continue to produce our national accounts statistics in line with the UK Statistics Authority’s (UKSA’s) Code of Practice for Statistics and in accordance with internationally agreed statistical guidance and standards.

The Withdrawal Agreement outlines a need for UK Gross National Income (a fundamental component of the national accounts, which includes GDP) statistics to remain in line with those of other EU countries until the EU budgets are finalised for the years in which we were a member. To ensure comparability during this cycle, the national accounts will continue to be produced according to European System of Accounts (ESA) 2010 definitions and standards.

Quarterly Stocks Inquiry temporary expansion

The Quarterly Stocks Survey (formerly Inquiry) is used in the compilation of the changes in inventories component. To address users’ concerns about the sample size of the survey and the potential impact on quality, we temporarily increased the sample size from 5,500 to 9,500 businesses for Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2019. Because of uncertainty about the EU exit date, we decided to extend this sample boost into Quarter 4 2019 and are currently assessing whether to extend this further. Our early analyses have shown that the introduction of this increased sample has not caused any significant discontinuity in estimates of changes in inventories.

UK gross domestic product (GDP) was flat in Quarter 4 (Oct to Dec) 2019. The subdued performance of the UK economy is in line with the majority of external expectations, including the National Institute of Economic and Social Research and the Bank of England. The first snapshot of how the economy performed in 2019 as a whole shows GDP growth of 1.4%. This reflects a slight pickup from the previous year, although it is one of the slowest rates since the financial crisis of 2008 and 2009.

UK GDP growth has been particularly volatile throughout 2019, in part reflecting changes in the timing of activity related to the UK’s original planned exit dates from the EU. Although there is some evidence, both externally and in this dataset, that there has been stockpiling taking place in late 2019 ahead of the second planned EU exit date in October, initial estimates indicate that this was to a lesser degree than that taking place ahead of the original planned EU exit date in March. At face value the headline imports figures do not show strong evidence consistent with stockpiling, but when we look at the monthly path of imports from the EU we do see a pattern consistent with that seen in advance of the UK’s original departure date at the end March, albeit less pronounced. The extent to which stockpiling happened in Quarter 4 2019 will become clearer as we receive additional data.

The underlying momentum in the UK economy continued to show signs of slowing. Quarterly GDP growth has been between 0.2% and 0.3% in 2019 on average, continuing the slowing that has been experienced over the previous five years. Compared with the same quarter a year ago, the UK economy increased by 1.1% (Figure 1).

In line with the National Accounts Revisions Policy, the dataset is open to revision back to Quarter 1 (Jan to Mar) 2019 as part of this publication. There have been some small revisions to the quarterly path of GDP in 2019. There were slight upwards revisions in Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2019, reflecting revisions to output and expenditure approaches to measuring GDP. There were also some revisions to the quarterly path of nominal GDP throughout 2019, with upwards revisions in Quarters 1 and 3 and a downwards revision in Quarter 2. Nominal GDP increased by 0.1% in the final quarter of the year.

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. This includes the price movements in private and government consumption, investment and the relative price of exports and imports. The implied deflator slowed notably in Quarter 4, increasing by 0.1% – its weakest rate since Quarter 4 2015. Compared with the same quarter a year ago, the implied GDP deflator increased by 1.8% in Quarter 4, in line with the previous quarter.

The output measure of gross domestic product (GDP) was flat in Quarter 4 (Oct to Dec) 2019, following a period of volatility throughout the year. This was in part linked to changes in the timing of activity around the originally planned departure dates of the UK from the EU in March and October 2019. The underlying momentum in the service industry continues to show signs of easing since the increase in activity in summer 2018, slowing to 0.1% in the final quarter of 2019. Manufacturing output fell sharply in Quarter 4 2019 and has now fallen for three consecutive quarters, while construction output grew 0.5% in the final quarter of 2019 (Figure 2).

Services output remained subdued in the final quarter of 2019, in which it increased by 0.1%. This is its weakest rate since mid-2016. The slowing is driven by falls in several industries, most notably wholesale and retail trade. The slowing is corroborated by the Bank of England Agents Summary, which recorded a weakening in business services activity as political uncertainty weighed on activity. The Services PMI (PDF, 182.92KB) also reported a relatively subdued picture in the final month of 2019, reporting that business activity was unchanged in December following a marginal reduction in the previous month. Anecdotal evidence suggested that domestic political uncertainty in the run-up to the general election was the main factor weighing on new orders.

Real estate activities grew by 0.3% in Quarter 4, reflecting strength in estate agents and commercial real estate output. There was also an increase in education services output, which increased by 0.7%. There have been offsetting falls in several other industries, most notably wholesale and retail trade, which fell in the latest quarter for the first time since the Quarter 1 (Jan to Mar) 2017, predominantly reflecting the 1.0% fall in retail sales in the final three months of 2019. Anecdotal evidence suggested that goods did not sell as well as expected in December 2019. The decline in retail sales is corroborated by data from the British Retail Consortium (BRC) – who recorded a 0.9% decline in sales in November and December 2019 – and noted how 2019 was “the worst year on record and the first year to show an overall decline in retail sales”.

The volatility throughout the first half of 2019 has been particularly pronounced in the production sector, specifically in manufacturing. This was consistent with activity being brought forward ahead of the UK’s original intended EU departure date, followed by a slowdown in activity in Quarter 2 (Apr to June) exacerbated by partial car plant shutdowns in April. Similar impacts were seen in the manufacturing sector ahead of the second intended EU departure date in October, although to a lesser degree.

However, likely in part linked to the timing of planned exit dates within the quarter, these impacts are less clear when you look at Quarter 4 as a whole when compared with Quarter 1. There have also been downwards revisions to production throughout 2019, with a 1.3% decline in UK production output in 2019. This is the first annual contraction in production output since 2013, while manufacturing output fell by 1.5% overall in 2019, which may partially reflect relatively weaker global GDP growth, as global trade tensions have weighed on economic activity.

The 0.8% quarterly decline in production output has been predominantly driven by the continued fall in manufacturing output. While there is some external evidence that there was an increase in stockbuilding in the latest quarter, it is difficult to unpick the extent to which this has affected manufacturing output over this period, despite some evidence of activity being brought forward ahead of the second intended EU exit date in October. The Bank of England Agents Summary noted how “stockbuilding activity ahead of the October Brexit deadline was lower than it had been ahead of the original March deadline”. The weakness in the manufacturing industry in the three months to December is corroborated by the CBI Industrial Trends Survey, who noted how output volumes fell at the fastest rate since September 2009, reflecting “widespread weakness in the global manufacturing sector and the impact of continued Brexit uncertainty in the run-up to the General Election”. The British Chambers of Commerce also reported how the manufacturing sector remained weak by historical standards in Quarter 4 2019, as domestic and export orders continued to contract.

The fall in manufacturing output reflects widespread declines across a number of industries (Figure 5). The manufacture of transport equipment fell sharply, which partially reflects a number of car plant shutdowns in November 2019. The decline in transport equipment manufacturing is also evident in recent data from the Society of Motor Manufacturers and Traders (SMMT), who recorded a 6.4% fall in car production in Quarter 4, and a 14.2% decline in 2019 as a whole. The SMMT attributed to the decline to a number of factors, including weakened consumer and business confidence at home, slower demand in important overseas markets, a number of significant model production changes, and a shift from diesel across Europe. The often-volatile manufacture of pharmaceutical products also fell in the final quarter of 2019 following a relatively flat Quarter 3.

Mining and quarrying fell 2.8% in Quarter 4, partially reflecting ongoing shutdown issues at an onshore facility which are increasingly impacting North Sea gas production. Following some volatility in the first three quarters of 2019, electricity, gas, steam and air conditioning increased by 1.8% Quarter 4, while water supply and sewerage production grew for the third consecutive month, increasing by 0.5% in Quarter 4 2019.

Construction output increased by 0.5% in Quarter 4 2019. The quarterly increase reflects strength in new construction work, particularly in private commercial and public housing in the three months to December 2019. The quarterly increase in construction output is stronger than the majority of external evidence, including the Bank of England Agents Summary which recorded a marginal reduction in construction activity in Quarter 4 as uncertainty caused delays in a number of construction industries. This stronger than expected performance partially reflects an upwards revision to construction output in November 2019 (revised up 0.5 percentage points) following late and revised survey returns.

The expenditure measure of gross domestic product (GDP) was flat in Quarter 4 (Oct to Dec) 2019. Private consumption was subdued in the latest quarter, as government consumption and net trade contributed positively to growth. Gross capital formation (GCF) fell in Quarter 4 2019, although there was some evidence of stockbuilding taking place in the latest quarter (Figure 6).

Household consumption increased by a subdued 0.1% in Quarter 4 2019, continuing its recent slowing. The increase of 1.4% in 2019 is its weakest annual growth rate since 2011. The latest Bank of England Agents’ Summary of Business Conditions also noted muted growth in consumer demand, stating that “annual growth in retail sales values remained subdued” in the final quarter of 2019. The latest official figures show that retail sales fell 1.0% in Quarter 4 2019. The GfK Consumer Confidence figures in December found that there was a slight increase in consumer sentiment at the end of 2019, though the overall Consumer Confidence Index score remains in negative territory.

Government consumption increased by 2.1% in Quarter 4 2019, a notable pickup from the previous quarter and the strongest quarterly growth since Quarter 1 (Jan to Mar) 2012. The increase reflects higher central government spending in the areas of public administration, defence services, health expenditure, and education. It should be noted that the latest data are partly based on budgetary forecasts rather than actual spending and as such will be subject to revision as actual spend data become available.

There have been revisions to the quarterly path of government consumption in the first three quarters of 2019 as forecast data have been replaced by outturn data.

Gross Capital Formation – which includes gross fixed capital formation, changes in inventories and acquisitions less disposal of valuables – fell 12.4% in Quarter 4 2019. This was largely driven by acquisitions less disposal of valuables, reflecting large movements in non-monetary gold in the latest quarter (Figure 7). These movements do not affect headline GDP, as they are recorded as equivalent offsetting impacts in the UK National Accounts, but they are reflected in the composition of GDP growth. More information on how non-monetary gold features in GDP is available.

Gross fixed capital formation (GFCF) fell by 1.6% in the fourth quarter of 2019. The fall was driven by declines in investment in information and communication technology (ICT) equipment, dwellings, transport, and intellectual property products, though these were partially offset by an increase in investment in other buildings and structures. Business investment fell by 1.0% in the final quarter of the year, continuing its recent subdued performance as heightened uncertainty is likely to have weighed on the willingness of firms to invest in capital. These figures have been subject to balancing in Quarter 4 2019 (see the Quality and methodology section for more information) therefore they should be interpreted with some caution.

External evidence suggests that investment intentions remained weak. For example, the latest Bank of England Agents’ Summary of Business Conditions reports that investment intentions remained depressed in Quarter 4 2019 as the result of “slower global growth and political uncertainty”. The Quarter 4 2019 Decision Maker’s Panel states that “the share of firms reporting that Brexit was an important source of uncertainty for their business remained elevated in November”. However, the more timely Deloitte CFO Survey points out that Brexit is no longer a top concern for CFOs, citing the easing in trade tensions between the United States and China towards the end of 2019, and the reduced political uncertainty following the December 2019 UK General Election amongst reasons for this trend.

The latest estimates show that government investment decreased by 0.5% in Quarter 4 2019, signalling the third consecutive quarter of decline. There were some revisions to the quarterly path of government investment in 2019, most notably a downwards revision in Quarter 2 2019, reflecting seasonal adjustment updates. Government investment is estimated to have grown 2.1% in 2019, although users should note that government investment figures are based on the latest available budgetary information provided by government departments including HM Treasury and local government. These estimates may be subject to revision when outturn data become available.

Alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to GDP – more detail on these can be found in the Quality and methodology section of this publication. When these adjustments are removed, there is some evidence that stockbuilding was taking place in late 2019, as there was an increase of £2.2 billion in stocks being held by UK companies in Quarter 4 2019 (Table 2). In terms of contribution to growth, change in inventories excluding alignment and balancing adjustments contributed 1.46 percentage points to GDP growth in the latest quarter (Figure 8).

Trade imports and exports have been volatile through 2019, in part reflecting the effects of movements of “unspecified goods”, which include non-monetary gold. Today’s estimates show that the UK posted a trade surplus of £5.9 billion – or 1.1% of nominal GDP – in Quarter 4 2019. However, it should be noted that this figure is inclusive of precious metals. When precious metals are excluded, today’s estimates show that the UK had a trade deficit of 1.2% of nominal GDP in the latest quarter (Figure 9). Users are advised that significant balancing adjustments have been applied to trade figures to produce a balanced estimate of GDP, more detail can be found in the Quality and methodology section.

At face value, the headline imports figures do not show strong evidence consistent with stockpiling, but when we look at the monthly path of imports from the EU we do see a pattern consistent with that seen in advance of the UK’s original departure date at the end March, albeit less pronounced. More detailed information can be found in the UK Trade release.

Nominal gross domestic product (GDP) grew 0.1% in Quarter 4 (Oct to Dec) 2019, following an increase of 0.9% in the previous quarter (Figure 10). This is the weakest quarterly figure since Quarter 2 2011. Compensation of employees (CoE) increased 0.7% in the fourth quarter, driven by wages and salaries which grew by 0.8%.

Gross operating surplus (GOS) of corporations fell 1.1% in the fourth quarter, following an increase of 3.3% in the previous quarter. Meanwhile, following two consecutive quarters of decline, other income (which includes mixed income and the operating surplus of the non-corporate sector) grew 0.8% in Quarter 4 2019, driven by self-employment income.

Release content

All data in this bulletin are seasonally adjusted estimates. Non-seasonally adjusted data are available within the UK Economic Accounts (UKEA). These data can be downloaded directly from the UKEA dataset and on the UKEA main aggregates dataset table. Data published in the UKEA reflect data as published on 20 December 2019 and are consistent with the data in this release up to Quarter 4 (Oct to Dec) 2018.

A number of other economic indicators were published on 11 February 2020, these include:

• GDP monthly estimate, UK: December 2019
• data for gross fixed capital formation (GFCF) by sector and asset, revision triangles and a real-time database
• Index of Services
• Index of Production
• Construction output in Great Britain
• UK trade

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Gross domestic product (GDP) QMI.

The national accounts are drawn together using data from many different sources. This ensures that the national accounts are comprehensive and provide different perspectives on the economy, for example, sales by retailers and purchases by households.

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.

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. 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 its larger data content.

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 data tables in this release, have a target limit of plus or minus £2,000 million on any quarter. However, in periods where the data sources are particularly difficult to balance, larger alignment adjustments are sometimes needed. To achieve a balanced GDP dataset through alignment, balancing adjustments are applied to the components of GDP where required. The balancing adjustments applied in this quarter are shown in Table 3.

In our first quarterly estimate, output tends to paint a more reliable picture of what is happening overall in the economy, and so balancing adjustments are applied to the expenditure and income components of GDP where required to align to output. These adjustments are generally applied to the individual components where data content is particularly weak in a given quarter because of a higher level of forecast content. We have applied larger than usual adjustments to the expenditure approach in Quarter 4 (Oct to Dec) 2019 in part after heightened uncertainty around the impact of the UK’s planned exit from the EU on the activity of businesses. The resulting series should be considered accordingly.