GDP quarterly national accounts, UK: April to June 2020

• UK gross domestic product (GDP) is estimated to have contracted by 19.8% in Quarter 2 (Apr to June) 2020, revised from the initial estimate of a 20.4% fall.

• This is the largest quarterly contraction in the UK economy since quarterly records began in 1955 and marks the second consecutive quarterly decline after a fall of a revised 2.5% in the previous quarter.

• Compared with the same quarter a year ago, the UK economy fell by a revised 21.5%.

• UK GDP is estimated to have increased by 1.3% between 2018 and 2019; this was revised down 0.2 percentage points from the previous estimate.

• There have been record quarterly falls in services, production and construction output in Quarter 2 2020, which have been particularly prevalent in those industries that have been most exposed to government restrictions.

• The households saving ratio increased to a record 29.1% in Quarter 2 2020, compared with 9.6% in Quarter 1 (Jan to Mar) 2020.

• Data in this bulletin are consistent with our annual UK National Accounts, The Blue Book: 2020 publication to be published on 30 October 2020; estimates therefore incorporate new data and methods throughout the time series.

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

The quarterly national accounts are typically published around 90 days after the end of the quarter. At this stage, the data content of this estimate from the output approach to GDP has risen since the first quarterly estimate, usually to around 90% of the total required for the final output-based estimate. There is also usually around 90% data content available to produce estimates of GDP from the expenditure approach and around 70% data content from the income approach.

Further information on all three approaches to measuring GDP can be found in the Guide to the UK National Accounts.

Data in chained volume measures 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.

Blue Book 2020

This release contains data that are consistent with the UK National Accounts, The Blue Book: 2020, which will be released on 30 October 2020. As such, data for all periods within this release are subject to revision in line with the National Accounts Revisions Policy.

The Blue Book is the UK’s annual compendium of national accounts data and incorporates a number of improvements to methods and sources into the UK’s National Accounts.

In Blue Book 2020, we have introduced a number of methodological improvements and utilised improved source data. Further detail on these changes is available in the Revisions to GDP section.

The reference year and last base year for all chained volume measure estimates is now 2018.

Impact of the coronavirus

This release captures the direct effects of the coronavirus (COVID-19) pandemic and the government measures taken to reduce transmission of the virus. We have faced an increased number of challenges in producing quarterly estimates of UK GDP for Quarter 1 (Jan to Mar) 2020 and Quarter 2 (Apr to June) 2020. More detailed information on the challenges and the steps taken to mitigate those can be found in Coronavirus and the effects on UK GDP.

As a result of these challenges, GDP estimates for Quarter 1 and Quarter 2 2020 are subject to more uncertainty than usual and are likely to have larger than usual revisions in subsequent releases.

UK gross domestic product (GDP) is estimated to have contracted by 19.8% in Quarter 2 (Apr to June) 2020, revised from the initial estimate of a 20.4% fall. This marks the second consecutive quarterly decline after a fall of a revised 2.5% in the previous quarter (Figure 1). This is the largest quarterly contraction in the UK economy since quarterly records began in 1955 and reflects the ongoing containment policies that have been put in place, including public health restrictions and forms of voluntary social distancing. In level terms, real GDP was last lower in Quarter 1 (Jan to Mar) 2003. Compared with the same quarter a year ago, the UK economy fell by a revised 21.5%.

This release provides revised quarterly estimates up to Quarter 2 2020. An indicative monthly path associated with today’s figures can be found in the Links to related statistics section, but any monthly figures quoted in this release are consistent with those published in the monthly estimate for July 2020. Monthly figures for July have also been published, suggesting that GDP made up around half of its ground lost during the pandemic.

Recent analysis explains our latest position on how we are looking to communicate GDP, including how we will continue to acknowledge “technical” recessions as comprising of at least two consecutive quarters of contracting GDP. While it is still true that these early estimates are prone to revision, we prefer to focus on the magnitude of the contraction that has taken place in response to the coronavirus pandemic. It is clear that the UK is in the largest recession on record. The latest estimates show that the UK economy is now 21.8% smaller than it was at the end of 2019, highlighting the unprecedented size of this contraction.

In line with the National Accounts Revisions Policy, data for all periods within this release are subject to revision. Revisions throughout the open period also reflect changes introduced as part of the annual Blue Book process. These include weight changes, the use of new chain-linked deflators as well as the incorporation of Value Added Tax (VAT) data. Looking at more recent periods, there have been some revisions to the quarterly path of GDP throughout 2019. Annual GDP growth is now estimated to have been 1.3% in 2019.

Nominal GDP fell by a revised 14.5% in Quarter 2 2020, its largest quarterly contraction on record. The implied GDP deflator represents the broadest measure of inflation in the economy, reflecting changes in the price of all goods and services that comprise GDP, and increased by 6.7% in the second quarter. This primarily reflects movements in the implied price change of government consumption, which increased by 35.3% in Quarter 2 2020. This reflects how we record elements of non-market output, specifically health and education.

Statistical guidance recommends measuring many aspects of government output directly, by counting activities, rather than by adjusting expenditure for price movements. Our health and education volume estimates are based on cost-weighted activity indicators, in which we estimate that the volume of government activity fell in the second quarter despite government expenditure increasing in nominal terms at the same time. Compared with the same quarter a year ago, the implied GDP deflator increased by 9.8%, a strengthening from the previous quarter.

Other countries have now published estimates of GDP for the second quarter of 2020. These estimates highlight how the coronavirus pandemic and the response to it has had an impact upon the global economy, with record declines reported in all of these countries. The figures reflect how the size of the contractions have not been uniform across countries, in part reflecting the spread of the virus in each country and the timing of lockdown measures and when these were lifted. They also likely reflect the structural features of these economies as some industries are more exposed to the response to the pandemic, such as those that involve interactions with other people.

Additionally, they might also reflect differences in how non-market output is measured in different countries, specifically the extent to which volume indicators are in place and how these have been affected by the pandemic. Consistent with international guidance, the Office for National Statistics (ONS) uses direct measures of the volume of activity to estimate the volume of non-market output such as health and education. International comparisons should be made with care if the estimates being compared are based on different approaches to measuring the volume of non-market output.

Given the difference in timings of the imposition of lockdown measures between countries, it is useful to consider the cumulative fall in GDP in the first half of this year. Figure 2 shows cumulative GDP growth in the first half of 2020 for all of the G7 economies. Despite revisions to the quarterly path of UK GDP in the first half of 2020 – a downward revision in Quarter 1 and an upward revision in Quarter 2 – the narrative on the UK’s performance in the first six months of 2020 is broadly in line with what we previously estimated. Compared with the end of 2019, the UK fell by a cumulative 21.8% in the first six months of 2020.

Today’s estimates show that services output contracted by 19.2%, production output fell by 16.3%, while construction output decreased by 35.7% in Quarter 2 (Apr to June) 2020 (Figure 3). Despite some revisions to the lower-level components of the output measure of gross domestic product (GDP), the recent narrative remains similar, with record quarterly falls in services, production and construction output in Quarter 2 2020. There have also been revisions to Quarter 1 (Jan to Mar) 2020, as GDP is now estimated to have contracted by 2.5% – a larger fall than previously estimated.

Services

Services output decreased by 19.2% in Quarter 2 2020, an upward revision of 0.7 percentage points. This follows a fall of a revised 2.6% in the first quarter, downwardly revised from the previous estimate of a 2.3% fall. Overall, services output fell by a cumulative 21.3% in the first six months of this year.

The quarterly fall in Quarter 2 2020 reflects declines in the vast majority of industries, most notably accommodation and food services, wholesale and retail trade and repair of motor vehicles, human health and social work activities, and administrative and support service activities (Figure 4). These industries accounted for almost half of the total contraction in services output in the second quarter.

The decline largely reflects the 18.5% fall in April 2020 following the introduction of government restrictions at the end of March. Although there was some pickup in May and June, the levels of output were still well below the February level before the main impacts from the pandemic were felt. The monthly movements through the quarter are mirrored in the June IHS Markit UK Services PMI (PDF, 153KB), which notes the improvement in business conditions across the UK service sector in June compared with April, which experienced a survey record low because of “business closures, shutdowns among clients or shrinking sales due to a slump in non-essential spending”. The weakness is also echoed in the Quarter 2 2020 Bank of England Agents’ Summary of Business Conditions, which reported that spending on consumer services was significantly weaker than a year ago and noted the likely negative impact of social distancing measures on activity in the leisure and hospitality industries.

Output of accommodation and food services fell by a revised 85.7% in the second quarter. According to the Office for National Statistics (ONS) Business Impact of Coronavirus (COVID-19) Survey, 57% of businesses in the accommodation and food services sector reported their turnover had decreased by more than 50% compared with normal during the period from 6 April to 19 April 2020. Meanwhile, output of wholesale and retail trade and repair of motor vehicles fell 20.7%, driven by motor vehicles, which saw output fall by 62.4% in the second quarter because of a fall in new car registrations. The weakness in retail is reflected in footfall data in the Faster indicators publication, which shows that footfall in retail parks, shopping centres and high streets was on average 70% lower in Quarter 2 2020 compared with the same period a year ago.

Meanwhile, output of human health and social work activities fell by a slightly revised 27.1%, reflecting cancelled operations, falls in primary health care in the form of GP services and lower accident and emergency attendance. Education output fell by a revised 27.6% as a result of school closures throughout the lockdown period. The upward revision reflects improved alignment of education output estimates to the expenditure measure of education. For more information on health and education estimates in the second quarter of 2020, please refer to the Expenditure section of this release.

Production

Production output fell by a revised 16.3% in Quarter 2 2020, marking the fifth consecutive quarterly decline. The fall was mainly the result of the 20.4% monthly decline in production output in April, which was driven by a fall in manufacturing output. The quarterly contraction in output reflects declines in all four production sub-industries (Figure 5). Output in the first quarter is now estimated to have fallen by 2.1%, a downward revision driven by manufacturing. Compared with the end of 2019, production output fell by a cumulative 18.1% in the first six months of 2020.

Manufacturing output fell by a revised 21.1% in Quarter 2 2020, signalling its fifth consecutive quarterly contraction. External survey evidence also shows the decline in manufacturing output. The IHS Markit UK Manufacturing PMI index reached a record low in April, reflecting declines across the consumer, intermediate and investment goods sub-industries, which were linked to “the consequences of the COVID-19 outbreak, particularly regarding company closures, weak domestic and global demand and labour shortages (following job losses and staff furloughs)”.

There were widespread falls in most manufacturing industries in Quarter 2 2020 (Figure 6). The most notable was the manufacture of transport equipment, which fell by 47.1% following widespread factory shutdowns during the lockdown period. According to data from the Society of Motor Manufacturers and Traders (SMMT), UK factories produced 381,357 cars in the first six months of 2020, the worst six-month performance since the first half of 1954. Additionally, the Quarter 2 2020 Bank of England Agents' Summary of Business Conditions noted that "widespread shutdowns caused manufacturing output to fall sharply” in the second quarter, highlighting severe economic disruption in the aerospace, automotive, heavy engineering and oil and gas industries.

Mining and quarrying output fell by 1.5% in Quarter 2 2020, reflecting coronavirus-related shutdowns as well as reduced demand for oil and gas. Output of electricity, gas, steam and air fell by 5.6% in Quarter 2 2020, reflecting a fall in industrial demand for electricity caused by the temporary closures of businesses. Water supply and sewerage production fell by 4.2% as a result of a decline in industrial and commercial waste because of business closures in April and May.

Construction

Construction output fell by 35.7% in Quarter 2 (Apr to June) 2020, following a decline of 2.8% in the Quarter 1 (Jan to Mar). Altogether, the cumulative fall in construction output in the first six months of this year was 37.6%.

The fall in construction output in the second quarter reflects declines in both new work, and repair and maintenance. Most notably, private new housing declined by 49.5% as housebuilding activity was affected by various social distancing measures that were put in place in response to the coronavirus (COVID-19) pandemic.

The quarterly contraction was mainly driven by the 40.2% monthly decline in construction output in April, which was caused by record declines in all types of work. This is corroborated by the April IHS Markit UK Construction PMI (PDF, 156KB), which reported “a rapid downturn in overall construction output” following business closures in April. The Quarter 2 2020 Bank of England Agents' Summary of Business Conditions notes that construction output “is still significantly lower than a year ago due to weak private sector demand”, highlighting the spillover effects this could have “on other sectors, such as companies that provide furnishings and fittings”.

There have been large movements in all types of expenditure in Quarter 2 (Apr to June) 2020, most notably private consumption, which reflected the implementation of public health restrictions, the mandated closures of non-essential shops and forms of social distancing (Figure 7). This accounted for more than three-quarters of the fall in gross domestic product (GDP) in the second quarter.

Private consumption

Household consumption fell by a revised 23.6% in Quarter 2 2020, which is the largest quarterly contraction on record. This is slightly weaker than the first estimate of a decline of 23.1%. Some types of household consumption are likely to be particularly affected while social distancing is in place, especially those types of spending that are more reliant on physical interaction with other people or those that relate to travel. The decline was driven by falls in spending on restaurants and hotels, transport, and recreation and culture (Figure 8).

Today’s estimates include updated spending data on energy, alcohol and tobacco, cars and new data from the Retail Sales Index related to clothing, footwear, furniture and electricals. This release also incorporates data from the Living Costs and Food Survey. Official retail sales figures show a 9.5% fall in the volume of retail sales in the three months to June, with declines across all store types except food stores and non-store retailing. The volume of sales from food stores was 5.3% higher in June 2020 compared with February. Meanwhile, the proportion of online spending in June was 31.8%, slightly lower than the record 33.3% reported in May but considerably higher than the 20.0% reported in February.

The Quarter 2 2020 Bank of England Agents’ Summary of Business Conditions states that “spending on consumer services and non-food goods was significantly weaker than a year ago, though online sales of some products were strong”. The BRC Retail Sales Monitor shows that total sales returned to growth in June “as a result of lockdown measures being eased, and pent-up demand being released” though noting that the clothing, footwear, and health and beauty industries were still struggling. In other external survey evidence, the GfK Consumer Confidence index in April was only five points above the historic low seen in July 2008, though consumer confidence showed improvement in June.

The decline in transport spending is in line with Department for Transport (DfT) figures, which indicate lower than normal usage across motor vehicles, National Rail, the London Underground (Transport for London (TfL)) and bus travel in the second quarter. This is a direct impact of the coronavirus (COVID-19) pandemic on work-related spending, reflected in lower levels of spending on fuel and public transport.

Spending by non-profit institutions serving households (NPISH) declined by 25.3% in Quarter 2 2020. This fall in spending reflects the estimated net impact of reduced incomes of charities from sources such as fundraising events and charity shops and increases in income from grants provided by the government as part of coronavirus relief measures.

Consumption of government goods and services

The coronavirus pandemic and subsequent measures to reduce transmission of the virus had a significant impact on government consumption in the second quarter. In nominal terms, government expenditure increased by 15.6%, reflecting higher spending related to the coronavirus as well as planned increases in spending.

Meanwhile, the volume of government consumption fell by 14.6% in the second quarter, reflecting declines in health and education activity. Government healthcare consumption fell by a revised 30.4% in Quarter 2 2020. This largely reflects the postponement or cancellation of healthcare treatments as the NHS increased its critical care capacity in its response to dealing with the pandemic.

The volume of government education spending fell by a revised 24.5% in the second quarter. This was a result of school closures across the UK, with schools closed to all except for vulnerable pupils or those whose parents or guardians are critical workers. Teaching staff continued to support children learning at home, and our estimates take this into account. For more information on our methods please refer to Coronavirus and the impact on measures of UK government education output.

These contrasting movements in the nominal and volume measures caused a large increase in the implied deflator, or implied price change, for the consumption of government goods and services. This reflects direct volume indicators underpinning the measurement of some areas of non-market output, such as health and education.

Gross capital formation

Gross fixed capital formation (GFCF) is estimated to have contracted by 21.6% in the second quarter of 2020, revised from the initial estimate of a 25.5% fall. Business investment made the largest contribution to the decline, which fell by 26.5% (Figure 9). This has been revised from the first estimate of a 31.4% fall. Excluding the effects of a reclassification in 2005, this is the largest quarterly fall in business investment on record. By comparison, business investment fell at most by 9.8% during the 2008 global economic downturn. Estimates are subject to more uncertainty than usual as a result of the challenges we faced in collecting data during the coronavirus pandemic.

We received over 2,000 comments from businesses responding to the Quarterly Acquisitions and Disposals of Capital Assets Survey, which mentioned an adverse impact of the coronavirus pandemic. Of these comments, the most commonly cited impact was either a reduction or delay in investment. This finding is reinforced by responses to ONS’ Business Impact of Coronavirus (COVID-19) Survey. The survey found that 42% of businesses continuing to trade during the period from 1 to 14 June 2020 said that capital expenditure had stopped or was lower than normal because of the coronavirus pandemic.

The Quarter 2 2020 Decision Maker Panel noted that the largest hits to investment are expected in “businesses providing highly consumer-facing services”, which is “consistent with the sector expecting to experience the largest and most persistent impact on sales”. Meanwhile, the Quarter 2 2020 Bank of England Agents’ Summary of Business Conditions stated that companies have “mostly cancelled or postponed non-essential investment to preserve cash buffers” though some businesses have “redirected investment to finance social distancing measures and facilitate remote working”.

Businesses also faced an elevated level of uncertainty, reflected in the UK’s Economic Policy Uncertainty Index, which was on average five times higher in the second quarter compared with the same period a year ago. Indeed, the Quarter 2 2020 Deloitte CFO Survey (PDF, 944KB) stated that the coronavirus pandemic is a top risk facing businesses, adding that chief financial officers’ (CFOs’) assessment of external uncertainty “remains higher than at any point before the COVID-19 pandemic”.

There was a record fall in private sector dwellings investment, and a fall in associated transfer costs in the second quarter. This reflects lower activity in construction and the property market during the lockdown period. Meanwhile, government investment increased by 19.3% in Quarter 2 2020, a notable upward revision from the previous estimate largely reflecting updated data from the central government on health, and, plant and machinery.

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 bulletin. Therefore, the unadjusted data provide a better understanding of the change in the inventory position of businesses. Here, the underlying data show a substantial decrease of £2.1 billion in stocks being held by UK companies in Quarter 2 2020 (Table 2). This reflects a fall in the level of stocks held within the wholesale and retail trades as well as motor trades.

According to the June IHS Markit UK Manufacturing PMI (PDF, 169KB), “the current weak economic backdrop led to lower levels of raw material purchasing and further depletion of stocks of purchases and finished goods”, adding that the pandemic was causing “substantial disruption to supply chains, leading to material shortages, vendor shutdowns and transportation issues.”

Net trade

The impact of the coronavirus pandemic on the global economy has led to large falls in gross trade flows in and out of the UK, reflecting a marked fall in global trade demand as well as how restrictions have disrupted international supply chains. The latest World Trade Monitor estimates that world trade fell by 12.3% in the second quarter of 2020. Additionally, data on shipping activity from the Office for National Statistics (ONS) Faster indicators publication show that average daily ship visits fell by 12% in the second quarter compared with the previous quarter.

The 22.7% decline in import volumes has been more pronounced than the 11.0% fall in export volumes (Figure 10). This partly reflects larger declines in imports of machinery and transport equipment – caused by road vehicles, and fuels – driven by oil, compared with exports of these goods. There have also been particularly volatile movements in non-monetary gold over this period.

Today's estimates show that the UK posted a trade surplus of 3.6% of nominal GDP in Quarter 2 2020, compared with an initial estimate of 4.0%. However, it should be noted that this figure is inclusive of precious metals. When these are excluded, the UK had a trade surplus of 1.6% of nominal GDP in the second quarter. For more detailed analysis on Trade movements in Quarter 2 2020, please refer to the UK trade release.

The volume of goods exports fell by 6.0%, reflecting lower exports of cars, mechanical power generators, aircraft, works of art and jewellery. These declines were partially offset by an increase in exports of non-monetary gold. Meanwhile, the volume of goods imports fell by 20.1% in Quarter 2 2020, reflecting lower imports of cars, mechanical power generators, road vehicles other than cars, clothing and jewellery. Revisions to trade in goods estimates throughout the open period reflect revised data from HMRC, updated data on non-monetary gold as well as methodology changes introduced as part of Blue Book 2020.

Trade in services exports fell by 16.4% because of falls in travel, other business services, air transport and financial services. The decline in travel exports reflects falls in both business and personal travel, though exports of education-related travel – which includes university tuition fees – have not been affected as significantly.

Travel restrictions that have been implemented on a global scale have also significantly reduced the flow of tourists to and from the UK, which have been particularly marked on the UK imports of those services. Services imports fell by 28.7%, particularly those of travel services, air transport and other business services. Revisions to trade in services estimates throughout the open period reflect methodology changes for transport services introduced as part of Blue Book 2020, new data from the International trade in services (ITIS) survey as well as updated seasonal adjustment factors relating to travel.

External survey evidence points towards weakened exports activity in the second quarter. The June IHS Markit UK Manufacturing PMI (PDF, 169KB) stated that “new export business fell for the eighth straight month, reflecting low market confidence and the ongoing impact of COVID-19”. According to the June CBI Industrial Trends Survey, export orders books in the manufacturing sector fell to an all-time low, reflecting a significant fall in external demand. Meanwhile, the Quarter 2 2020 Quarterly Economic Survey by the British Chambers of Commerce reported that the balance of firms reporting increased export sales was “substantially lower than the worst quarter of the 2008-09 recession”.

Nominal gross domestic product (GDP) fell by 14.5% in Quarter 2 (Apr to June) 2020, revised from the first estimate of a 15.4% contraction. This is the largest quarterly fall in nominal GDP on record. Taxes less subsidies fell by 95.2% in Quarter 2 2020, a downward revision from the first estimate of an 83.7% fall (Figure 11). This revision reflects updated data on Value Added Tax (VAT) receipts, the incorporation of actual data from HMRC relating to the Coronavirus Job Retention Scheme (CJRS) as well as the inclusion of data on local government subsidies to small businesses that were not captured in the first estimate.

The decline in taxes less subsidies in the second quarter reflects a decrease in tax revenue and an increase in subsidies. The increase in subsidies primarily relates to the CJRS and Self Employment Income Support Scheme (SEISS), the latter being primarily recorded in May 2020. There was also an increase in transport subsidies granted to rail and bus services in the second quarter.

Additionally, today’s figures incorporate estimates of a local government subsidy providing financial support to small businesses affected by the coronavirus (COVID-19) that was not recorded in our first quarterly estimate. There was also a fall in revenue from VAT as well as from fuel, tobacco, stamp, and air passenger duties, partially offset by increases in beer, wine, spirits and gambling duties. The decline in VAT revenue reflects lower transactions and is not caused by the VAT payments deferral scheme. This is because transactions are recorded on an accrual basis within the national accounts, so for reporting purposes the transaction is registered at the point when it was adjudged to take place.

Compensation of employees (CoE) fell by an unrevised 2.2% in Quarter 2 2020, the largest quarterly fall since the 2008 economic downturn. Wages and salaries fell by a downwardly revised 2.7%, because of updated source information, reflecting the latest labour market data. Employers' social contributions fell by 0.1% in the second quarter, an upward revision resulting from updated National Insurance data.

The impact of the CJRS is one reason why the fall in wages and salaries has been less marked than other types of income. Gross operating surplus (GOS) of corporations fell by an upwardly revised 12.5%, as private non-financial corporations (PNFC) GOS is estimated to have fallen by 9.6% in the second quarter. Meanwhile, financial corporations’ GOS fell by a downwardly revised 30.3%, the largest quarterly fall since Quarter 1 (Jan to Mar) 2002. This follows a 13.3% increase in Quarter 1 2020, which, despite an increase in net spread earnings reflecting extreme market volatility and elevated trading volumes, was predominantly driven by the application of balancing adjustments (Table 7).

According to the Quarter 2 2020 EY UK profit warnings report (PDF, 1.314MB), UK companies issued 165 profit warnings in Quarter 2 2020, a 139% increase from the previous year. The report stated that 84% of profit warnings cited the impact of the coronavirus pandemic, adding that coronavirus stresses were spreading from “the lockdown-impacted sectors of the first quarter to sectors exposed to the knock-on impacts of changing corporate and consumer behaviour”.

In this UK National Accounts: The Blue Book 2020-consistent dataset, a number of methodological changes have been made and improved source data have been used, in addition to revisions caused by taking on updated source data as would happen in all quarterly national accounts releases.

The main methodological changes affecting this release relate to:

• professional fees
• financial intermediation services indirectly measured
• chain-linking

Further details about the main changes affecting this release are available in Impact of Blue Book 2020 changes on current price and volume estimates of gross domestic product.

Quarterly GDP revisions

Quarter 1 2019

Gross domestic product (GDP) growth in volume terms is now estimated to be 0.6%, revised downwards by 0.1 percentage points from the previous estimate.

There have been downward revisions to the expenditure and income approaches to measuring GDP. The expenditure revisions are driven by revisions to gross capital formation (GCF) and household final consumption expenditure.

The revisions to the income approach to measuring GDP are mainly because of revisions to compensation of employees and taxes less subsidies.

These have been partially offset by an upward revision to the output approach, which now aligns with the average measure of GDP. The main drivers for the upward revision were production and agriculture.

Quarter 2 2019

It is now estimated that there was no growth in GDP in volume terms, which is an upward revision compared with a previously estimated fall of 0.1%.

There have been upward revisions to the output and income approaches to measuring GDP. The output revisions are mainly driven by revisions to production and services, while the income revisions are primarily a result of a revisions to taxes less subsidies.

The revision to production is largely because of revisions to electricity, gas and steam production as a result of improved source data. There are also revisions to manufacturing, particularly to the manufacture of transport equipment as a result of revised seasonal adjustment factors.

These have been partially offset by a downward revision to the expenditure approach, which have been driven by revisions to gross capital formation and net trade.

Quarter 3 2019

GDP growth in volume terms is now estimated to be 0.3%, revised downwards by 0.2 percentage points from the previous estimate.

There have been downward revisions to all three approaches to measuring GDP. The largest of those was to the expenditure approach and was a result of combined downward revisions to government expenditure, household expenditure, gross capital formation and net trade.

Quarter 4 2019

GDP growth in volume terms is now estimated to be 0.1%, revised upwards by 0.1 percentage points from the previous estimate. The revision is a result of upward revisions to the expenditure and income approaches to measuring GDP, the output approach remains unrevised.

In the expenditure and income approaches the revisions are mainly because of revisions to the alignment adjustment which is applied to the changes in inventories and to the gross operating surplus of private non-financial corporations respectively.

Quarter 1 2020

GDP growth in volume terms is now estimated to have fallen 2.5%, revised downwards by 0.3 percentage points from the previous estimate.

In the output approach to measuring GDP, which is the lead measure in the latest two quarters, there are downward revisions to services, production and construction.

The revision to services is largely a result of a revision to education because of improved alignment with government expenditure data. The revisions to production and construction are the result of updated survey data.

There is a notable upward revision to the GDP implied deflator in Quarter 1 2020. This is being driven by upward revisions to growth in the household expenditure, non-profit institutions, gross capital formation and net trade implied deflators.

Quarter 2 2020

GDP growth in volume terms is now estimated to have fallen 19.8%, revised upwards by 0.6 percentage points from the previous estimate.

In the output approach to measuring GDP the main driver of the revision is services as a result of a revision to education resulting from improved alignment with government expenditure data. There is also an upward revision to professional, scientific and technical activities as a result of improved source data.

In the income approach to measuring GDP, there has been a notable downward revision to the taxes less subsidies component as a result of a revised increase in subsidies granted. This is because of the incorporation of the Small Business Grant Fund into our estimates. This is offset within the gross operating surplus of private non-financial corporations component.

Revisions to gross national income

Gross national income (GNI) is defined as gross domestic product (GDP) plus net property income received from abroad.

Estimates of GNI form the basis for calculating part of the contributions to the European Union (EU) Budget by member states and the UK. There is a verification cycle in place in which member states provide Eurostat with an up-to-date inventory of the sources and methods used to calculate GNI and its components according to European System of Accounts (ESA) 2010.

Reservations refer to those points in which a member state has been notified that changes to the methodology underlying their estimates of GNI figures are needed to improve comparability, reliability and exhaustiveness in GNI figures. While the UK is no longer a member of the EU, the terms of the withdrawal agreement set out a need for GNI statistics to remain in line with EU guidance until budget payments for years in which the UK was a member of the EU and payments covering the transition period are settled. A number of improvements to address reservations on the UK accounts have been made in this release.

An article detailing indicative revisions to the Institutional Sector Accounts, including net property income, and revisions to Balance of Payments was published on 7 September 2020. The article provides the overall impact of the changes on UK GNI up to 2018 resulting from changes in Blue Book and Pink Book 2020.

Estimates of GNI can be found in Table A2 of the GDP – data tables.

Revisions caused by addressing GNI reservations are shown here under the headings of "professional fees", "FISIM" (financial intermediation services indirectly measured) and "GNI other".

None of the countries included within this international comparison reported positive economic growth in Quarter 1 (Jan to Mar) 2020 or Quarter 2 (Apr to June). Prior to Quarters 1 and 2 of 2020, the last time all countries experienced negative economic growth was Quarter 1 2009.

The smallest decline seen over the latest quarter was in Japan, where a 7.9% fall in gross domestic product (GDP) was reported following a 0.6% fall in Quarter 1 (Jan to Mar) 2020. EU (EU28) economies fell by 11.4% in Quarter 2 2020, which is the weakest growth since Organisation for Economic Co-operation and Development (OECD) records began (Quarter 1 1995).

The estimates quoted in this international comparison section are the latest available estimates at the time of preparation of this statistical bulletin and may subsequently have been revised. The data are gathered from the OECD’s website excluding the data from the UK, which is compiled by Office for National Statistics (ONS).

Section 3 includes more commentary on some the challenges around international comparisons of GDP in the current period.

As announced in the article Coronavirus and the effects on UK GDP, the Office for National Statistics (ONS) has temporarily withdrawn the comprehensive Quarterly sector accounts (QSA) statistical bulletin with a brief overview now provided in this bulletin along with the release of a QSA headline bulletin.

The QSA and the associated statistical compendium UK Economic Accounts presents the net lending or borrowing of an institutional sector from both their financial and non-financial accounts as well as a number of important economic indicators, including the household sector’s saving ratio. Definitions of these can be found in the QSA headline bulletin.

Figure 12 shows unprecedented sector movements in the non-financial accounts as the economic impacts of the global coronavirus (COVID-19) pandemic intensified in the April to June 2020 period. The households net lending position increased markedly to 20.0% of GDP in Quarter 2 (Apr to June) 2020 from 3.0% in Quarter 1 (Jan to Mar) 2020. The reasons for this are discussed in the context of the households’ saving ratio in Figure 12.

General government net borrowing position increased to a record 22.6% of GDP in the latest quarter from 4.6% in Quarter 1 as the government’s economic policy response to the coronavirus pandemic increased its support for businesses and individuals, including the extension of the Coronavirus Job Retention Scheme (CJRS) and the introduction of both the Self Employment Income Support Scheme (SEISS) and the Small Business Grant Fund.

Private non-financial corporations returned to net lending (3.2% of GDP) in Quarter 2 as government support in the form of tax deferrals, subsidies and grants combined with reduced capital expenditure outpaced a reduction in gross operating surplus (GOS) across a number of service, manufacturing and construction industries.

Figure 13 shows that the households saving ratio increased to a record 29.1% in the latest quarter, compared with 9.6% in the previous quarter, as households reduced their consumption spending by a record £80.5 billion (negative 24.2%). This is over nine times greater than the previous largest quarterly fall in household spending of this type. The reduction in spending is driven by large falls in expenditure on restaurants and hotels, transport – particularly air transport and motor vehicles – and recreation and cultural services.

ONS research into personal and economic well-being during the pandemic has found that as lockdown continued, there were trends of growing economic inequality, as more low-income individuals were less likely to be able to save for the future compared with high-income individuals. This trend continued after some easing of restrictions throughout May and June.

Looking beyond Quarter 2, another measure of financial resilience – the ability to afford a necessary, one-off expense – worsened after June, and particularly so for those with a personal income of £10,000 to £20,000, who saw the largest rise in the number of people who could not afford this expense.

Additionally, people’s expectations surrounding their own finances and the UK economy continued to worsen after Quarter 2, especially as more people expected it would take longer than a year for life to return to normal.

It is worth noting that these measures are sourced from the weekly Opinions and Lifestyle Survey and are therefore not directly comparable with the national accounts households savings ratio but provide useful context in understanding these figures.

The contrasting fortunes of the institutional sectors were mirrored in their financial accounts. Households increased their financial account net lending to £83.3 billion in the latest quarter as they increased their deposits and currency assets by £44.6 billion more than in the previous quarter in line with their reduced consumption expenditure. At the same time, the household sector reduced some of its financial debt as loan liabilities decreased. Quarter 1 2020 saw the first net loan repayment by the household sector since Quarter 1 2010, meaning that the value of existing loans paid off exceeded that of new loans issued.

General government increased their financial account net borrowing to £128.8 billion in the latest quarter as it financed its response to the coronavirus pandemic and fall in tax revenue.

Private non-financial corporations increased their financial account net lending to £13.8 billion in the latest quarter as they increased their deposits and currency assets by a record £62.1 billion more than in the previous quarter. This was partly offset by increased liabilities of other accounts receivable and payable of £20.1 billion more than in the previous quarter as part of the accruals recording of Value Added Tax (VAT) in the sector accounts representing the coronavirus-related deferral of VAT payments scheme.

While it is assumed that all deferred tax owed will still be paid, this will be at a much later date. The receipts forecasts used for VAT in Quarter 2 2020, have been based on the latest Office for Budget Responsibility’s (OBR’s) Coronavirus Reference Scenario (published on 14 July 2020), adjusted to take account of the impacts of the deferral scheme.

Despite remaining net borrowers in the latest quarter, the financial corporations sector saw large transaction movements in both its assets and liabilities. FINCOs increased their assets of Central Government gilts by over £146 billion compared to its acquisition in the previous quarter. Financial corporations also increased their rest of the world share assets by £123.9 billion more than in the previous quarter, reversing the large reduction they saw in Quarter 1. Offsetting this, the sector saw drops in both net loans issued of £169.3 billion and net currency and deposits of £115.5bn compared with the previous quarter, as the “Dash for Cash” reported in Quarter 1 slowed.

Annex table

Significant government interventions affecting the non-financial account of the Sector Accounts in Quarter 2 2020:

• Coronavirus Job Retention Scheme (CJRS) was implemented by the government to support employers maintaining their employees on the payroll.

• Self-Employment Income Support Scheme (SEISS) is a grant scheme to support the self-employed with the intention of supporting their business operations and compensating for loss of income.

• Small Business Grant Fund and the Retail, Hospitality and Leisure Grant Fund; two grants intended to help businesses with a fall in sales or increased costs as a result of the coronavirus (COVID-19).

The flow of these interventions through the UK’s institutional sectors is shown in Table 5.

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 30 September 2020 and are consistent with the data in this release.

A number of other economic indicators were published on 30 September 2020, these include:

• Business investment
• Balance of payments
• Consumer trends

Monthly GDP

On 11 September 2020, estimates of Monthly GDP were published for July 2020. The Index of Services, Index of Production and Construction output in Great Britain publications covering July 2020 are also available.

This release sees revisions to all time periods. Although this release focuses on providing the best quarterly estimate of GDP, an indicative monthly path for the Quarter 1 (Jan to Mar) 2020 and Quarter 2 (Apr to June) is provided in Table 6. A full breakdown of the monthly data consistent with this release will be available in the next monthly GDP release (on 9 October 2020).

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 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 – 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 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 quarterly national accounts 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. They are applied to the individual components 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 7 the resulting series should be considered accordingly.

Coronavirus (COVID-19) impact on response rates

Figure 14, Figure 15 and Figure 16 highlight a decline in response rates for surveys that feed into the GDP quarterly national accounts and Quarterly sector accounts estimates for Quarter 2 (Apr to June) 2020. We have undertaken a significant amount of work to ensure that the effect on the quality of our estimates are mitigated as much as possible.

This includes focusing resources on main respondents and industries, methodology reviews including but not limited to seasonal adjustment, forecast and imputation, and the use of additional sources of data (in quality assurance). More information on the measures taken can be found in Section 6 of Coronavirus and the effects on UK GDP.

More information on Monthly Business Survey response rates by industry is available.