GDP quarterly national accounts, UK: January to March 2021

• UK gross domestic product (GDP) is estimated to have decreased by 1.6% in Quarter 1 (Jan to Mar) 2021, revised from the first estimate of a 1.5% decline.

• The level of GDP is now 8.8% below where it was pre-pandemic at Quarter 4 (Oct to Dec) 2019, revised from a first estimate of 8.7% below.

• There have been contractions in services and production output, however construction output grew over the quarter.

• In output terms, the largest contributors to this fall were from the education, wholesale and retail trade, and accommodation and food services industries, in particular at the beginning of the quarter in response to the tightening of coronavirus (COVID-19) restrictions.

• Government consumption increased in Quarter 1 2021, however household consumption expenditure and gross capital formation fell as a result of the reintroduction of COVID-19 restrictions; trade contracted further with falls both in imports and exports of goods and services.

• The household saving ratio increased to 19.9% in Quarter 1 2021, which is the second highest on record, compared with 16.1% in Quarter 4 2020.

UK gross domestic product (GDP) is estimated to have contracted by 1.6% in Quarter 1 (Jan to Mar) 2021 (Figure 1). This is revised from the first estimate of a decline of 1.5%, as coronavirus (COVID-19) lockdown restrictions were re-introduced across all four nations of the United Kingdom.

In line with the National Accounts Revisions Policy, this dataset is only open to revision for Quarter 1 2021 as part of this publication. As announced on 29 June please see the monthly trade release regarding a correction planned for the 9 July 2021 publication.

The level of GDP in the UK is now 8.8% below pre-pandemic levels at the end of 2019. Compared with the same quarter a year ago, the UK economy fell by an unrevised 6.1%.

Nominal GDP fell by a revised 0.2% in Quarter 1 2021, while the implied deflator increased by 1.4%. Compared with the same quarter a year ago, the implied GDP deflator increased by 4.8%, mainly reflecting an increase in the implied price change of government consumption.

Figure 2 shows the level of nominal and real GDP in each of the G7 countries relative to their pre-pandemic levels. Recent ONS analysis highlighted the challenges of making international comparisons of GDP at this time and explained why it may be useful to compare nominal and real estimates of GDP, as well as estimates excluding government expenditure. Real GDP in all G7 countries remain below its pre-pandemic (Quarter 4 (Oct to Dec) 2019) level, ranging from -0.9% to -9.3%. Nominal GDP estimates – which may be more comparable –show that Canada and the United States are now above their Quarter 4 2019 levels.

International comparability of real GDP estimates may pose some challenges because of differences in methodology across National Statistical Institutes. More information on the international comparability of GDP estimates can be found in International comparisons of GDP during the coronavirus (COVID-19) pandemic.

In Quarter 1 (Jan to Mar) 2021, services output fell by a slightly revised 2.1% and is now 8.8% below Quarter 4 (Oct to Dec) 2019 levels. The largest contributors to this fall were from the education, wholesale and retail trade, and accommodation and food services industries (Figure 3), especially at the beginning of the quarter, in response to the tightening of coronavirus (COVID-19) restrictions. Combined, these consumer facing services fell by 7.5% in Quarter 1 2021. Previously published monthly gross domestic product (GDP) estimates show falls in January 2021 in nearly all sub-sectors, with some recovery in February and March 2021.

The 14.7% fall in education output in Quarter 1 2021 reflects the relatively low level of school attendance in January and February because of the closure of schools as part of the government response to the coronavirus pandemic. School attendance improved in March, when schools in some areas of the UK began reopening. The downward revision in education output reflects a monthly reprofiling of education output across the first quarter of 2021 because of updated attendance data, and estimates reflecting the effect of remote learners.

Accommodation and food services fell by a revised 18.6% in Quarter 1 2021, reflecting the impact of coronavirus restrictions that forced the closure of the hospitality industry, such as hotels and restaurants. The coronavirus restrictions also affected the wholesale and retail trade industry, which fell by a revised 5.7%. Other personal service activities, which includes hairdressers, fell by a downwardly revised 31.3% as coronavirus restrictions affected consumer-facing services.

Health experienced an increase in output in Quarter 1 2021, reflecting the inclusion of the effect of the NHS Test and Trace service and coronavirus vaccination programme.

There is more information on health and education estimates in Quarter 1 2021 in Section 4: Expenditure, including adjustments to capture health services more fully such as the NHS Test and Trace service.

Production

Production output fell by a slightly revised 0.5% in Quarter 1 2021, mainly because of a 1.0% decline in manufacturing output (Figure 4). The level of production output is now 3.7% below Quarter 4 2019 levels, while manufacturing is 3.6% lower than pre-pandemic levels.

The fall in manufacturing output in the quarter was driven by a revised 7.7% decrease in manufacturing of transport equipment, partially offset by a 5.7% increase in manufacturing of pharmaceutical products. Monthly production estimates show that the manufacture of transport equipment was particularly weak at the start of the quarter because of an export-led fall in the sale of motor vehicles, trailers and semi-trailers.

After a 3.8% fall in Quarter 4 2020, mining and quarrying continued to fall in Quarter 1 2021 by a downwardly revised 3.2%. Electricity, gas, steam and air conditioning supply increased by a revised 2.5% in Quarter 1 2021.

Construction

In Quarter 1 2021, construction output increased by 2.3% but was still 3.7% below pre-pandemic levels. The quarterly increase largely reflects a rise in private new housing, and non-housing repair and maintenance. Most recent monthly estimates show growth was particularly strong in March. Anecdotal evidence received from survey returns suggested increased new work, delayed projects returning to sites, and a general increase in demand and confidence across the industry, as well as unusually warm weather were contributing factors to the large monthly increase in construction output in March 2021.

In Quarter 1 (Jan to Mar) 2021, household consumption expenditure and gross capital formation fell (Figure 5). There was a rise in real government expenditure driven by spending on public administration and defence and health, which outweighed the fall in education given school closures. UK trade contracted further in Quarter 1 2021, with falls both in imports and exports of goods and services, although the decrease has been greater in the case of imports.

Household consumption

Household consumption fell by a revised 4.6% in Quarter 1 2021, as public health restrictions were reintroduced for much of the first quarter, and is now 13.4% lower than pre-pandemic levels (Figure 5). In Quarter 1 2021, spending in restaurants and hotels fell by 42.2%, while spending on transport has also been affected by the restrictions on mobility (Figure 6). Estimates of credit and debit card spending in the UK indicate that, despite recovering throughout the quarter, spending at the end of March 2021 was still around 13% below its levels before the pandemic, with social expenses around 30% lower.

Gross capital formation

In Quarter 1 2021, gross fixed capital formation (GFCF) decreased by 1.7%, mainly because of a 50.8% fall in transport equipment.

Business investment fell by 10.7% in Quarter 1 2021, an upward revision of 1.2 percentage points from the first estimate. This component is now 17.3% below pre-pandemic levels (Figure 7). The Bank of England Agents’ Summary of Business Conditions highlights that investment intentions are still weak despite the coronavirus (COVID-19) vaccination and the government plan to ease restrictions, as “considerable caution remains about the strength of a future recovery”.

During late 2020, there was evidence of some stockpiling taking place in advance of the end of the EU exit transition period. In Quarter 1 2021, finished manufacturing goods, as well as retail, continued to see an increase in inventories. This might reflect late arrivals because of port issues at the end of the previous quarter, build-up of stock because of slow economic activity in the quarter, and increases in stock in anticipation of the reopening of stores. The unaligned and unbalanced revised inventories data show an increase of £1.9 billion in stocks being held by UK companies in Quarter 1 2021, a higher rate than the £1.5 billion increase that was observed in Quarter 4 2020 (Table 2).

Note that alignment and balancing adjustments are typically applied to the inventories component to help balance the different approaches to gross domestic product (GDP). More detail can be found in Section 9: Measuring the data. Therefore, the unadjusted data can provide a better understanding of the change in the inventory position of businesses in the whole economy.

Consumption of government goods and services

In Quarter 1 2021, government consumption increased by a revised 1.5% driven by increases in Public administration and Defence, and Health. The rise in Public administration and Defence is driven by intermediate consumption (the value of goods and services purchased to produce the output) in several areas such as Defence, Devolved Administrations, DEFRA, and Network Rail.

Nominal government consumption in health increased by a revised 0.7% in Quarter 1 2021. This partly reflects an increase in the volume of healthcare services, mainly because of the NHS Test and Trace service and COVID-19 vaccination programme. Government final consumption expenditure in nominal terms includes spending on the NHS Test and Trace service and the COVID-19 vaccination programme. However, such activities are not captured within our source data for government final consumption expenditure in volume terms. We have therefore added NHS Test and Trace and COVID-19 vaccination adjustments of £6,900 million to our volume measure in Quarter 1 2021, of which £5,000 million is in relation to the NHS Test and Trace service and £1,900 million is in relation to COVID-19 vaccination. These approximate estimates are informed by the latest available data including in-year spending data for the NHS Test and Trace service; the available estimated cost to secure and manufacture COVID-19 vaccines for the UK and the deployment of vaccines in England; available testing and vaccination data and estimated imports. These are early estimates that will be refined when a new method is introduced later in 2021.

Not all of this extra activity will be seen in the output of the health industry as there are other industries involved in the production of COVID-19 vaccines and various testing kits, as well as a number of service industries involved in the logistical process of delivering the programmes. We will be undertaking further work to understand the supply chains involved in delivering the NHS Test and Trace service, as well as the production and distribution of COVID-19 vaccination, which may lead to some revisions to the industry distribution of these activities.

The consumption of education services fell by a downwardly revised 12.8% in Quarter 1 2021, following a 9.9% increase in the previous quarter. This reflects the fall in school attendance in January and February 2021 because of the closure of schools in response to the coronavirus pandemic, and the extent to which remote learning is considered an effective substitute for in-person teaching. Detailed information on our approach to measuring education is included in our latest Coronavirus and the impact on measures of UK government education output publication.

Net trade

The UK trade balance improved in Quarter 1 2021, recording a deficit of 0.1% of nominal GDP. There were falls in the gross flows of trade volumes in Quarter 1 (Figure 8), in part reflecting coronavirus restrictions weighing on domestic and global demand. It is also likely a consequence of previous stockpiling in preparation for the end of the EU exit transition period, while the move to new trading arrangements with the European Union appears to have had an impact on trade flows in early 2021.

The volume of goods imports fell by a revised 16.4%, mainly driven by falls in machinery and transport, miscellaneous manufactures such as clothing, and medical and pharmaceutical products. Goods exports volumes declined by 10.2%, primarily in fuels, chemicals, and miscellaneous manufactures. The level of gross services trade remains relatively subdued in Quarter 1, particularly in travel and transport, with services imports decreasing by a revised 4.0% in comparison to a decline of 0.6% in services exports.

Nominal gross domestic product (GDP) fell by a revised 0.2% in Quarter 1 (Jan to Mar) 2021 and remains 3.0% below its level before the pandemic (Figure 9). Wages and salaries increased by 0.4% in Quarter 1 2021, while employers’ social contributions fell by a revised 4.9%. This reflected updated national insurance data and a revised decrease in redundancy payments in Quarter 1 2021.

Taxes less subsidies fell by 9.7% in Quarter 1 2021, which mainly reflects increases in subsidy payments related to the Coronavirus Job Retention Scheme (CJRS) and the Small Business Grants Fund (SBGF).

Gross operating surplus (GOS) of corporations increased by a revised 2.6% in Quarter 1 2021, with private non-financial corporations increasing by 2.7%. However, this mainly reflects the alignment adjustment that is applied to this component for the purpose of balancing the income estimate of GDP for this quarter (Table 3). When the alignment adjustment is removed, GOS of private non-financial corporations increased by 0.5%. According to the EY UK profit warning report, in Quarter 1 2021 UK companies issued 50 profit warnings, the lowest figure for a first quarter since 2000. The majority of UK profit warnings were triggered by the coronavirus pandemic, followed by sales being below expectations, and delayed or discontinued contracts.

Figure 10 shows that in the non-financial account the UK’s borrowing position with the rest of the world was 2.5% of nominal GDP in Quarter 1 2021, down from 5% of nominal GDP in Quarter 4 2020. This was driven by a rise in the trade balance of £12.6 billion. Although, the UK reduced both its goods and services imports and exports over the period, imports fell by more subsequently improving the trade balance.

Households saw an increase in their net lending position to 10.6% of nominal GDP in Quarter 1 2021, up from 7.1% of nominal GDP in the previous quarter. This was driven by a further fall of household spending of £9.9 billion, a 10.3% fall from Quarter 1 2020 and a 3.2% fall from an already historically low Quarter 4 2020. This was supported by a rise in net property income of £7.6 billion, which can be primarily attributed to a rise in income attributable to pensions. Households are further discussed in relation to the Saving Ratio below.

In contrast, General Government has increased their net borrowing position to 13.3% of nominal GDP in Quarter 1 2021 from 11% of nominal GDP in Quarter 4 2020. This has been driven by a fall of Central Government’s net property income of £4.9 billion which can be primarily attributed to a fall in distributed income of corporations in Quarter 1. Central government has also increased final consumption expenditure by £2.9 billion, which is primarily a result of increased spending in general public services, defence and social security.

Non-financial and financial corporations reduced their net borrowing position to 0.6% and 0.5% of nominal GDP respectively on the quarter. Within non-financial corporations, private non-financial corporations (PNFCs) reduced their gross capital formation by £7.4 billion (13.4%) from the previous quarter. This was because of a reduction in gross fixed capital formation and a decline in the change in inventories. PNFCs’ decreased net borrowing position was offset by a fall in net property income of £6.1 billion, which can mostly be attributed to them making increased dividend payments, rising 23.8% on the quarter. Financial corporations’ reduced net borrowing position was driven by a fall in the acquisition less disposal of valuables.

Figure 11 shows the household saving ratio which reached 19.9% in Quarter 1 2021, which is the second highest on record. This was driven by a divergence between household’s gross disposable income, which increased by 0.1% from the previous quarter, and household’s final consumption expenditure, which fell by 3.2% from the previous quarter. As a result of rising coronavirus (COVID-19) cases, various national lockdowns were introduced across the countries of the UK for most of Quarter 1. As a result, household’s final consumption expenditure fell as the opportunity for selected types of spending was restricted. Spending in restaurants and hotels fell by 37.2% on the previous quarter while transport fell by 13.9% on the quarter.

Real household disposable income fell by 1.4%, despite the small nominal rise in household’s gross disposable income. This was as a result of growth in the household expenditure implied deflator (a measure of inflation). The deflator increase included price growth in financial intermediation services indirectly measured (FISIM), foreign tourists’ expenditure in the UK and owner occupiers’ imputed rental.

In the financial account, households increased their net lending position by £8.2 billion on the quarter to £39.1 billion. This was driven by a rise in pension entitlements (F.6M) of £5.2 billion.

The general government sector reduced its net borrowing position by £19.5 billion, with central government increasing its net debt securities by £32.1 billion almost wholly driven by a reduction in the net acquisition of UK central government long term debt securities liabilities. Central government also increased their net acquisition of currency and deposits by £13.5 billion.

In the Financial Account, non-financial corporations increased their net borrowing position to £5.5 billion in Quarter 1 2021, following a net borrowing position of £0.7 billion in the previous quarter. PNFCs, a subsector of non-financial corporations, increased their net borrowing position to £5.1 billion. In Quarter 1 2021, PNFCs started to draw upon their currency and deposits reducing their net acquisition of the asset by £46.4 billion. PNFCs also increased their loan liabilities while reducing loan assets resulting in a reduction in the acquisition of net loans of £18.8 billion.

Financial corporations increased their net borrowing position to £14.3 billion in Quarter 1 2021 from a borrowing position of £0.5 billion in the previous quarter. This was driven by falls in net acquisition of debt securities and overseas shares of £115.6 billion and £86.8 billion respectively, partially offset by a rise in net acquisition of currency and deposits of £150.1 billion.

Quarterly sector accounts annex table

Significant government interventions affecting the non-financial account of the Sector Accounts from 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 4.

Contribution to growth

Contribution to growth indicates how many percentage points a sector or industry is adding or removing from a given growth rate, usually headline gross domestic product (GDP) growth.

Chained volume measure

Data in chained volume measures (cvm) in this bulletin have had the effect of price changes removed (in other words, the data are deflated), except for income data, which are only available in current prices.

Gross domestic product (GDP)

A measure of the economic activity produced by a country or region. Gross domestic product (GDP) growth is the main indicator of economic performance. There are three approaches used to measure GDP:

• the output approach
• the expenditure approach
• the income approach

Index numbers

Data relative to a given base value, which typically refers to a particular year or quarter.

Rolling three-month growth

Rolling three-month growth takes the average level of three consecutive months (for example, April, May and June), and compares it with the average level of the previous three months (for example, January, February, and March). The rolling three-month growth rate is often used alongside the monthly growth rate, as the latter can be more volatile.

For further definitions, please see the Glossary of economic terms.

In line with the National Accounts Revisions Policy, Quarter 1 (Jan to Mar) 2021 is only open for revision in this publication.

In Blue Book 2021 a new framework will be introduced to improve how we produce volume estimates of gross domestic product (GDP) for balanced years as part of the supply use process. This framework includes the implementation of double-deflated industry-level gross value added for the first time. This improvement will be reflected in the September quarterly national accounts and October monthly GDP estimates. On 28 June we published Blue Book 2021 indicative impacts of this change to industry level gross value added volume.

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 take the lead because of the larger data content.

There is a difference in 2019 and 2020 data (in both levels and growths terms) between the quarterly publications (average GDP) and the GDP monthly estimate (output approach to GDP) because of quarterly GDP being a balanced measure of the three approaches and the output approach focussing solely on growth in gross value added and output as a proxy for 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 gross value-added concept to a GDP basis.

Information on the methods we use for Balancing the output, income and expenditure approaches to measuring GDP is available.

Alignment adjustments, found in Table M of the GDP quarterly national accounts data tables, have a target limit of plus or minus £3,000 million on any quarter.

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. In this release, a balancing adjustment of -£400m in chained volume was applied to the inventories component for 2021 Quarter 1 only (Table 2).

GDP monthly estimate

On 11 June 2021, estimates of Monthly GDP were published for April 2021. The Index of Services, Index of Production and Construction output in Great Britain publications covering April 2021 are also available.

This release sees revisions to Quarter 1 2021 estimates only. Although this release focuses on providing the best quarterly estimate of GDP, an indicative monthly path for Quarter 1 2021 is provided in Table 5. A full breakdown of the monthly data consistent with this release will be available in the next monthly GDP release (on 9 July 2021).

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 the Guide to the UK National Accounts and more quality and methodology information is available in the Gross domestic product (GDP) QMI.

Important quality information

There are common pitfalls in interpreting data series, these include:

• expectations of accuracy and reliability in early estimates are often too high
• revisions are an inevitable consequence of the trade-off between timeliness and accuracy
• early estimates are based on incomplete data

Very few statistical revisions arise as a result of “errors” in the popular sense of the word. All estimates, by definition, are subject to statistical “error”.

Many different approaches can be used to summarise revisions; the Accuracy and reliability section in the Gross domestic product (GDP) QMI analyses the mean average revision and the mean absolute revision for GDP estimates over data publication iterations.

GDP estimates for Quarter 1 2021 are subject to more uncertainty than usual as a result of the challenges we faced estimating GDP in the current conditions. Differences in the methods for estimating the output of health and education services across different countries mean GDP may be less internationally comparable during the coronavirus (COVID-19) pandemic and recovery than usual, so should be made with increased caution. For more information, please refer to our recently published blog.

Removal of datasets in GDP first quarterly estimate

As part of the GDP first quarterly estimate (FQE) and quarterly national accounts (QNA) releases, a number of datasets are produced. Currently, both the GDP revision triangles and real time databases are produced in both estimates. These datasets aim to provide an indication of the accuracy of the data and shows revisions throughout its timeseries. However, in a FQE, in line with the National Accounts Revision policy, there are not normally revisions to timeseries at this stage and as such, these datasets will not be produced during FQE going forward. The datasets will continue to be published during QNA and any other GDP estimate where there are revisions to timeseries. For further queries on this, please contact GDP@ons.gov.uk.