Gross domestic product, preliminary estimate: Oct to Dec 2016

• UK gross domestic product (GDP) was estimated to have increased by 0.6% during Quarter 4 (Oct to Dec) 2016, the same rate of growth as in the previous 2 quarters.

• Growth during Quarter 4 was dominated by services, with a strong contribution from consumer-focused industries such as retail sales and travel agency services.

• Following falls in Quarter 3 (July to Sept) 2016, construction and production provided negligible positive contributions to GDP growth in Quarter 4 2016.

• UK GDP was estimated to have increased by 2.0% during 2016, slowing slightly from 2.2% in 2015 and from 3.1% in 2014.

• GDP per head was estimated to have increased by 0.4% during Quarter 4 2016 and by 1.3% during 2016.

This is the first Preliminary GDP bulletin released as part of the new economic theme days. As such this bulletin now follows a more streamlined format and some tables such as revisions, previously found in the background notes, can now be found in the main datasets.

Monthly economic commentary has been published alongside this release, presenting new analysis on the latest economic data.

We welcome your feedback on this new style bulletin via our short survey.

Change in GDP is the main indicator of economic growth. The preliminary estimate of GDP is based solely on the output approach to measuring GDP.

The output approach measures gross value added (GVA) at a detailed industry level before aggregating to produce an estimate for the whole economy. GDP (as measured by the output approach) can then be calculated by adding taxes and subtracting subsidies (both only available at whole economy level) to this estimate of total GVA. However, as there is no information available on taxes and subsidies at this stage, the quarterly growth for output GVA is taken as a proxy for GDP growth (more information on creating the preliminary estimate of GDP is available on the methods and sources page of our website).

The preliminary estimate is the first of 3 estimates of GDP published by the Office for National Statistics, followed by the second estimate and the quarterly national accounts. In the second estimate of GDP and the quarterly national accounts, the output GVA and GDP estimates are balanced with the equivalent income and expenditure approaches to produce headline estimates of GVA and GDP. Further information on all 3 approaches to measuring GDP can be found in the national accounts.

All data in this bulletin are seasonally adjusted, chained volume estimates and have had the effect of price changes removed (in other words, the data are deflated).

The growth estimates within this release are created from short-term measures of output and should be considered alongside medium and long-term patterns in the series to give a more comprehensive picture. At this stage, data content is less than half of the total required for the final output estimate. The estimate is subject to revision as more data become available, but these revisions are typically small between the preliminary and third estimates of GDP, with no upward or downward bias to these revisions. In this release 44% of data that make up the output measure are included, more information on the data content and the monthly path of the components of the output measure of GDP are included in section 6.

In accordance with National Accounts revisions policy, there are no periods open for revision in this release.

Table 1 shows data for GDP, GDP per head and each of the main aggregates for Quarter 4 (Oct to Dec) 2016.

Figure 1 shows the seasonally adjusted volume series for GDP, along with quarter-on-quarter growths, over the past decade. In Quarter 4 2016, GDP has continued to grow in line with recent trends.

Figure 2 shows the average compound quarterly growth rate experienced over the 5 years prior to the economic downturn in 2008 to 2009, the average compound quarterly growth rate experienced between Quarter 3 (July to Sept) 2009 and Quarter 2 (Apr to June) 2014 (5 years following the downturn), and the current quarterly growth rate observed in the most recent period (Quarter 4 2016). Compound average growth is the rate at which a series would have increased or decreased if it had grown or fallen at a steady rate over a number of periods. This allows the composition of growth in the recent economic recovery to be compared with the long run average.

The UK experienced slightly slower average compound GDP growth in the 5 years following the economic downturn compared with the 5 years prior: this is also true of the services industry. Figure 2 shows that in Quarter 4 2016 total GDP, manufacturing and services outperformed their post-downturn average, but the other components of GDP were more subdued.

During Quarter 4 (Oct to Dec) 2016, UK GDP was estimated to have increased by 0.6%, with growth driven by services. The services aggregate was the sole contributor to the quarter-on-quarter percentage change in GDP to 2 decimal places. Production, construction and agriculture each contributed 0.00 percentage points to the headline figure.

Services

Within the services aggregate, the distribution, hotels and restaurants industry performed strongly, increasing by 1.7%, which contributed 0.24 percentage points to quarter-on-quarter GDP growth. Retail trade, wholesale trade and the trade and repair of motor vehicles were all strong performers.

The business services and finance industries also performed strongly, increasing by 0.9% in Quarter 4 2016, which contributed 0.28 percentage points to quarter-on-quarter GDP growth. A particularly strong performer was the travel agency industry, which increased by 7.3%, contributing 0.05 percentage points to headline GDP growth.

Growth in transport, storage and communications slowed to 0.3% in Quarter 4 2016, following growth of 2.6% in Quarter 3 (July to Sept) 2016. The slower rate of growth was mainly due to a fall back, following a particularly strong Quarter 3 2016 in the motion picture and computer programming and consultancy industries.

The government and other services industry growth remained at 0.4% in Quarter 4 2016, the same growth as Quarter 3 2016. Human health activities were the main contributor to growth in both periods, reflecting its large weight within GDP.

Many of the most significant contributions in the services industries during Quarter 4 2016 came from consumer-focused businesses. Industries such as retail trade; travel agencies; and the trade and repair of motor vehicles all performed strongly. This pattern of strength in consumer-focused industries is also apparent when comparing Quarter 4 2016 with Quarter 4 2015.

Production

Within the production aggregate: manufacturing increased by 0.7% in Quarter 4 2016, mainly due to a large rise in the erratically performing pharmaceuticals industry, after a fall of 0.8% in Quarter 3 2016; electricity, gas, steam and air conditioning supply increased by 3.9%; and water supply, sewerage, waste management and remediation activities increased by 1.7%.

However, these positive growths were offset by a 6.9% decrease in mining and quarrying. This was the largest fall since Quarter 4 2012, when it fell by 9.2%. The Department for Business, Energy and Industrial Strategy advised the decrease can largely be attributed to continued maintenance to the Buzzard oil field in the North Sea. Further commentary can be found in the Index of Production publication for October 2016.

Construction

Construction output was estimated to have increased by 0.1% during Quarter 4 2016, following a fall of 0.8% during Quarter 3 2016.

Agriculture

Agriculture output returned to growth after 3 consecutive quarters of decline. Output was estimated to have increased by 0.4% during Quarter 4 2016, following a fall of 0.7% during Quarter 3 2016. Agriculture is the smallest of the main industrial groups with a weight of less than 1% in the output measure of GDP. Revised data will be available for the earlier quarters of 2016 from the Department for Environment, Food and Rural Affairs for inclusion in the second estimate of GDP due for publication on 22 February 2017; this may lead to revisions to the quarterly growth rates for agriculture.

Figure 4 contains information about the data content for each month in Quarter 4 2016 and Quarter 4 2016 as a whole. The data content for the Quarter 4 2016 preliminary estimate is 44% of total output data, which is broadly similar to previous preliminary estimates.

The approach to producing the preliminary GDP estimate uses monthly data for October and November and forecasts for estimating December. The forecasts are reinforced by early responses to our Monthly Business Survey. More information on creating the preliminary estimate of GDP is available on the methods and sources page.

The Index of Production, construction output and Index of Services all feed into the headline GDP estimate. Some small revisions have taken place to previously published estimates, as seen in Table 2.

Figure 5 shows the year-on-year growths in GDP over the past decade. Annual GDP growth has slowed since 2014, with the 2016 figure continuing this trend. However, the figure is broadly in-line relative to figures after 2009, when the UK economy returned to positive growth after the economic downturn.

Figure 6 shows year-on-year growths for GDP as a whole and at a more detailed aggregate level. Positive growth was observed in production, construction and services.

During 2016, the services industries were estimated to have increased by 2.8%, up on the growth of 2.6% during 2015. The largest contributing services industry grouping was business services and finance, which grew by 2.8% during 2016. Growth was fairly broad-based, with only 2 of the 20 sub-industries contracting during 2016: legal activities decreased by 2.0% and accountancy, auditing and tax consultancy decreased by 0.9%. This is the first time since the economic downturn in 2009 that legal activities have decreased.

Notable industries by contribution within services during 2016 include: retail trade, which increased by 5.0%; computer programming and consultancy, which increased by 10.0%; and public administration and defence, which decreased by 1.8%.

The production industries grew by 1.1% during 2016, broadly in line with the 1.2% increase during 2015. All 4 of the main production aggregates increased during 2016: the largest increase was in the water supply and sewerage industries, which increased by 6.0%. The majority of the growth in the water supply and sewerage industries occurred during the first half of 2016. Manufacturing returned to positive growth during 2016: it was estimated manufacturing output grew by 0.3% compared with a decrease of 0.2% during 2015.

Growth in the construction industries was estimated to have slowed to an increase of 1.4% during 2016, down from an increase of 4.9% during 2015. Construction output contracted during 2012. Since then, construction output has grown every year, though the strength of growth has been variable: the year-on-year growth has ranged from a low of 1.4% (2016) to a high of 8.0% (2014) over this period.

The preliminary estimate of GDP is based solely on the output approach to measuring GDP and uses the same data that feed into the Index of Services, the Index of Production and Output in the Construction Industry datasets.

In the second estimate of GDP and the quarterly national accounts, the output gross value added (GVA) and GDP estimates are balanced with the equivalent income and expenditure approaches to produce headline estimates of GVA and GDP.

Additionally, national accounts articles were published on 23 January 2017, titled revisions to gross domestic product in Blue Book 2016 and the impact of methodological changes to chain-linking on gross domestic product.

Some general information on the quality of the estimate of GDP can be found in the Things you need to know about this release section in the main part of this statistical bulletin. Further information is available on the methods and sources page of our website.

The GDP Quality and Methodology Information document contains important information on:

• the strengths and limitations of the data
• the quality of the output: including the accuracy of the data and how it compares with related data
• uses and users
• how the output was created

The national accounts provide an integrated description of all economic activity within the economic territory of the UK, including activity involving both domestic units (that is, individuals and institutions resident in the UK) and external units (those resident in other countries). In addition to being comprehensive, the accounts are fully integrated and internally consistent.

More information can be found in the UK National Accounts: A Short Guide.