GDP quarterly national accounts, UK: July to September 2017

• UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.4% between Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2017, unrevised from the second estimate of GDP.

• Services remained the strongest contributor to growth in the output approach to GDP in Quarter 3 2017, with production also providing a positive contribution.

• Household spending grew by 0.5% in Quarter 3 2017, providing the strongest contribution to the expenditure approach to GDP; while growth has increased compared with the first two quarters of 2017, the underlying story is one of a slowdown in growth of household spending, with quarter on same quarter a year ago growth at 1.0%, the lowest rate since Quarter 1 (Jan to Mar) 2012.

• This GDP release includes annual benchmarks for 2016 and the incorporation for the first time of administrative VAT turnover to estimate the output of small businesses, the latter an important step in the transformation of the data sources used in economic statistics.

• More broadly, the profile of GDP between Quarter 1 2016 and Quarter 3 2017 is little changed compared with earlier estimates; the most notable feature was the economy performed slightly stronger than previously estimated in the second half of 2016 leading to GDP growth in 2016 being revised up by 0.1 percentage points to 1.9%.

• GDP per head was estimated to have increased by 0.2% between Quarter 2 and Quarter 3 2017.

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.

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 second estimate to around 91% of the total required for the final output-based estimate. There is also 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 short guide to national accounts (PDF, 317KB).

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

Revisions

In line with the National Accounts Revisions Policy the time series open for revision in this release is Quarter 1 (Jan to Mar) 2016 onwards. These revised periods take on data from annual benchmarks and the introduction of Value Added Tax (VAT) turnover data in the UK National Accounts. More detail can be found in the revisions to GDP section.

UK gross domestic product (GDP) increased by 0.4% between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017, following growths of 0.3% in the first two quarters of 2017. All three periods are unrevised from the second estimate of GDP published on 23 November 2017.

Table 1 shows GDP and the headline economic indicators from 2015 onwards.

Figure 1 shows the seasonally adjusted level of GDP along with quarterly growths. The growth between Quarter 2 2017 and Quarter 3 2017 is the 19th consecutive quarterly increase and continues the UK’s period of growth since Quarter 1 (Jan to Mar) 2013.

Growth in UK GDP is now 10.2% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 2013.

When looking at UK GDP growth in volume terms in the current quarter compared with the same quarter a year ago, GDP increased by 1.7% between Quarter 3 2016 and Quarter 3 2017, this is revised up from 1.5% in the second estimate of GDP, in part, due to upwards revisions to quarter-on-quarter growth estimates in Quarter 4 (Oct to Dec) 2016.

Implied deflator

The GDP implied deflator at market prices for Quarter 3 2017 is 1.7% above the same quarter of 2016. The GDP implied deflator is calculated by dividing current price (nominal) GDP by chained volume (real) GDP and multiplying by 100 to convert to an index. It is not used in the calculation of GDP; the deflators for expenditure components, which are the basis for the implied GDP deflator, are used directly in the compilation of real GDP.

GDP per head

GDP per head is calculated by dividing GDP in chained volume measures by the population estimates and projections. It is not a measure of productivity or well-being, but is a useful statistic as it removes the impact of the changing size of the population from headline GDP figures.

In Quarter 3 2017, GDP per head grew by 0.2% compared with Quarter 2 2017.

GDP per head is now 2.7% above the GDP pre-economic downturn peak in Quarter 1 2008, having surpassed it in Quarter 2 2015 (Figure 2).

The population estimates used in this release are those published on 22 June 2017 and the population projections used are those published on 26 October 2017.

The output approach to measuring gross domestic product (GDP) involves estimating production activity within the UK economy. It increased by 0.4% between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017, unrevised from the second estimate of GDP.

In Quarter 3 2017:

• agriculture increased by 0.8%

• production increased by 1.3%

• construction decreased by 0.5%

• services increased by 0.4%

Services

The largest component within the output approach of GDP is the services industries, which contributed to the growth in the output measure of GDP in Quarter 3 2017. Services increased by 0.4%, unrevised from the second estimate of GDP. Positive growth was recorded within two of four sub-sectors of the services industries between Quarter 2 2017 and Quarter 3 2017; business services and finance increased by 0.7% and distribution, hotels and restaurants increased by 0.5%. The other services industries remained flat with zero growth.

Further detail on the services industries’ lower-level components can be found in the Index of Services statistical bulletin.

Production

Production output was estimated to have increased by 1.3% between Quarter 2 2017 and Quarter 3 2017, revised up by 0.2 percentage points from the second estimate of GDP due to the inclusion of late survey returns. Within production, three of the four sub-sectors showed positive growth into Quarter 3 2017. Mining and quarrying including oil and gas extraction increased by 2.9%, electricity, gas and steam and air conditioning increased by 1.4% and manufacturing increased by 1.3%. The fourth component of production, water supply industries, decreased by 0.5%.

Construction

Construction output was estimated to have decreased by 0.5% in the third quarter of 2017, although this has been revised upwards from negative 0.9% in the second estimate of GDP due to the take-on of late survey returns and the latest seasonal adjustment of the data. This is the second consecutive quarter to contract after a sustained period of positive growth in all quarters since Quarter 4 (Oct to Dec) 2015.

Further information relating to the most recent quarter can be found in the Construction output in Great Britain statistical bulletin.

Agriculture

Agriculture, the sector that makes up the smallest proportion of total output, increased by 0.8% into Quarter 3 2017, revised up by 0.6 percentage points from the second estimate of GDP. New data received have driven this revision.

Figure 3 shows the contributions to GDP growth from the sectors of output. The services industries contributed most to GDP growth, with 0.3 percentage points in Quarter 3 2017, followed by production, with 0.2 percentage points. Throughout the periods shown in Figure 3, services have contributed most to GDP growth in all quarters.

The expenditure approach to measuring gross domestic product (GDP) increased by 0.4% between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017. The expenditure approach is the sum of all final expenditures within the economy, that is, all expenditure on goods and services that are not used up or transformed in the production process.

Household final consumption expenditure (HHFCE)

HHFCE, or household spending, grew by 0.5% between Quarter 2 2017 and Quarter 3 2017. While this represents an increased rate of growth compared with the first two quarters of 2017, the underlying story is one of a slowdown in growth of household spending, with quarter on same quarter a year ago growth at 1.0%, the lowest rate since Quarter 1 (Jan to Mar) 2012.

Although the revisions to household spending are small they affect a number of quarters in 2016 and 2017. However, the quarterly path continues the narrative of stronger growth in household spending in 2016 with a slowdown in late 2016 and early 2017. Please see the revisions to GDP section for further information on the reasons for these revisions.

Further information can be found in the Consumer trends release.

General government final consumption expenditure (GGFCE)

GGFCE declined by 0.2% between Quarter 2 and Quarter 3 2017, revised from an increase of 0.3% in the second estimate of GDP. The largest contributor to this decline was healthcare. Some estimates at this stage are based upon budgetary data and there is potential for revision when more outturn information becomes available throughout the financial year.

Gross fixed capital formation (GFCF)

In Quarter 3 2017, GFCF increased by 0.3% compared with Quarter 2 2017. This was revised upwards by 0.1 percentage points from the second estimate of GDP. Within GFCF, business investment grew by 0.5% in Quarter 3 2017, revised upwards by 0.3 percentage points from the second estimate of GDP. Information on the revisions to these series can be found in the revisions to GDP section.

Further details of the asset and sector breakdown can be found within the Business investment release.

Trade in goods and services

In Quarter 3 2017, the net trade deficit widened slightly, to negative £7,833 million in volume terms, from negative £7,673 million in Quarter 2 2017. Total trade exports increased by 0.8% whilst total imports increased by 0.9%, between Quarter 2 and Quarter 3 2017.

The increase in total exports was due to an increase of 1.6% in services exported and a smaller increase of 0.2% in goods exported. The increase in services exported was due primarily to strength in other services, which includes research and development. The increase in goods exported was broad-based, with the largest increase seen in machinery and transport equipment.

The increase in total imports was due to an increase of 1.4% in goods imported, partially offset by a fall of 0.6% in services imported. The increase in goods imported was driven by increases in fuels, and machinery and transport equipment. The decrease in services imported was driven by other business services and sea transport.

The trade data used within this release have been subject to a number of revisions since the second estimate of GDP due to taking on updated survey data, further information about these is available in the revisions to GDP section. These figures are though largely consistent with the monthly UK trade release published on 8 December 2017.

Figure 4 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures from Quarter 4 (Oct to Dec) 2015 to Quarter 3 2017. In the latest quarter the largest contribution to growth was from household spending, at 0.3 percentage points. The only other positive contributor to GDP growth was gross capital formation contributing 0.1 percentage points. All other components of the expenditure approach contributed neither positively nor negatively to GDP growth to one decimal place.

Nominal gross domestic product (GDP), or GDP not adjusted to take account of inflation, increased by 0.7% between Quarter 2 (Apr to June) 2017 and Quarter 3 (July to Sept) 2017, unrevised from the second estimate of GDP.

The income approach measures income generated by production in the form of gross operating surplus (profits), compensation of employees (income from employment), mixed income (self-employment income) and taxes on products and production less subsidies for the whole economy.

All data quoted in the rest of this section are in current prices seasonally adjusted.

Within the income measure of GDP, all four components increased between Quarter 2 2017 and Quarter 3 2017.

Compensation of employees (CoE)

CoE showed positive growth of 0.7% (seasonally adjusted) into Quarter 3 2017, unrevised from the second estimate of GDP. There was growth across both wages and salaries, and employers’ social contributions.

Across 2016 as a whole, CoE grew by 4.2%, revised up by 0.2 percentage points from the second estimate of GDP. Revisions to 2016 in particular were due to the inclusion of updated benchmark data for employers’ social contributions; further information is available in the revisions to GDP section.

Taxes on products and production less subsidies

Taxes on products and production less subsidies showed an increase of 1.8% in Quarter 3 2017. This was revised upwards by 0.4 percentage points from the second estimate of GDP due to updated source data from HM Revenue and Customs.

Other income

There was also an increase in other income, of 0.3%, revised upwards from 0.2% in the second estimate of GDP. This category includes mixed income (mostly self-employment income) and the operating surplus of the non-corporate sector.

Gross operating surplus of corporations

Gross operating surplus of corporations saw positive growth in Quarter 3 2017 of 0.1%. This includes the operating surplus of private corporations, private non-financial corporations and public corporations. This is in contrast to the previous quarter where this category of income experienced negative 0.8% growth in Quarter 2 2017.

Figure 5 shows the contribution made by income components to current price GDP. CoE, followed by taxes on products and production less subsides, were the largest contributors to the income measure of GDP.

The use of Value Added Tax (VAT) turnover data

This release uses Value Added Tax (VAT) turnover data to estimate the output of small businesses for some industries in the output approach to gross domestic product (GDP) for the first time. The use of the VAT turnover dataset is one of the first steps towards transforming the data sources used in economic statistics by increasing quality through enhanced use of large externally-collected administrative data in conjunction with Office for National Statistics (ONS) surveys.

In this release VAT turnover has been used for selected industries previously covered by the Monthly Business Survey from Quarter 1 (Jan to Mar) 2016 to Quarter 2 (Apr to June) 2017. It has only been used to estimate growth rates, with the overall level of output still derived from the Annual Business Survey and other annual benchmark sources.

The revisions to total output-based gross value added due to the use of VAT turnover data and other revisions are shown in Table 2.

Further information on the use of VAT turnover and its impact, can be found in the VAT turnover implementation into national accounts article.

The annual benchmarks

This release includes the processing and GDP balancing of a number of annual benchmarks for 2016 including:

• Annual International Trade in Services Survey (calendar year 2016)

• Financial Inquiries Surveys (calendar year 2016)

• Regulatory and administrative data for pension funds (calendar year 2016)

• Association of British Insurers data for industry 65 (Insurance, reinsurance and pension funding, except compulsory social security) (calendar year 2016)

• Local Government Final Outturn data for England and for Wales (financial year ending 2017)

These updates will help to improve the quality of our estimates where we are able to replace forecast and short-term estimates with more comprehensive annual survey data.

The impact from the use of VAT data and the implementation of the annual benchmarks on the 2016 dataset are presented for headline GDP along with the components of output, expenditure and income in the remainder of this section.

The headline picture

Annual gross domestic product (GDP) in volume terms was estimated to have increased by 1.9% in 2016 compared with 2015, revised up by 0.1 percentage points from the second estimate of GDP.

The periods open for revision in this release are Quarter 1 (Jan to Mar) 2016 onwards. Figure 6 shows quarterly revisions between latest and previously published estimates of GDP. There were upwards revisions to headline GDP in Quarter 3 (July to Sept) 2016 and Quarter 4 (Oct to Dec) 2016, all other periods remained unrevised.

The revision in Quarter 3 2016 was in part driven by increases in household spending in the expenditure approach and services in the output approach to measuring GDP. Within these components the revisions are driven primarily by the inclusion of annual benchmarks and use of VAT turnover respectively.

The revision in Quarter 4 2016 was driven in part by inventories in the expenditure approach and construction in the output approach. The revision to construction was driven by a combination of the introduction of VAT turnover data and late Monthly Business Survey returns.

In addition to the annual benchmarks and implementation of VAT turnover, there are also revisions in this release due to the replacement of forecasts with actual survey or external source data and new seasonal adjustment factors.

Changes to insurance and pensions

Annual benchmarks from ONS Financial Inquiries Surveys, regulatory administrative data for pension funds and data from the Association of British Insurers have been included in this round. These data sources have led to revisions across the three approaches to GDP:

• output – revisions to the insurance and reinsurance (65.1 to 2); pension funding (65.3); and activities auxiliary to financial services (66) industries

• income – revisions to the gross operating surplus of financial corporations and the employers’ social contributions component of compensation of employees

• expenditure – revision to the miscellaneous category in household final consumption expenditure and trade in services

These annual benchmarks presented some challenges in a short quarterly production round, which included the identification of some uncertainty in respondent reporting and merger and acquisition activity. In this context, we took the decision to use these annual benchmarks to inform our short-term estimates rather than take them on fully. These data will be reassessed and potentially subject to further revision when this period is next open for revision in the Blue Book 2018-consistent quarterly national accounts dataset that will be published on 29 June 2018.

Revisions to output

In the output measure of GDP, VAT turnover data have, for the first time, been used in the calculation of GDP. This release includes data from Index of Services based upon survey and VAT returns. The data for production and construction within this release are also based upon survey and VAT returns and so will differ from that published on 8 December 2017. On 10 January 2018, the production and construction bulletins will publish data consistent with this publication.

Annual benchmarks have also been taken on in the financial services industries as discussed in the changes to insurance and pensions section. These annual benchmarks impact the insurance and reinsurance (65.1 to 2), pension funding (65.3) and activities auxiliary to financial services (66) industries.

Detailed revisions to the sectors of output are shown in Table AE.

Revisions to income components

Compensation of employees (CoE): CoE comprises two parts, wages and salaries, and employers’ social contributions. For all quarters of 2016, revisions were due primarily to upward revisions to employers’ social contributions. As discussed in the changes to insurance and pensions section, the largest contributor to these upward revisions were funded pension scheme data.

Detailed revisions to the income components are shown in Table AG.

Revisions to expenditure components

Trade in services (TiS): Revisions to 2016 are due mainly to new, more robust (benchmark) data from the annual International Trade in Services Survey (ITIS) replacing earlier estimates from the quarterly ITIS surveys, which have a smaller sample size. Additionally, new annual Financial Inquiries data and new regulatory data have revised insurance services. Due to the new level of data in 2016 derived from the annual ITIS, there has been a knock-on effect in 2017 levels due to revised imputation.

Following this, the revised quarterly path needs to be constrained to the new annual level. The impact of the revised annual estimate does not have to be equally apportioned across the four quarters as statistical consideration has to be given to the pre-existing quarterly path and the impact of seasonal adjustment. This is why, although the overall annual revision may be upwards, there can still be downwards revisions to some of the quarterly growth rates.

Household final consumption expenditure (HHFCE): Revisions to 2016 and 2017 data are seen mainly in the Classification of Individual Consumption by Purpose (COICOP) miscellaneous category (12) and net tourism. As detailed in the changes to insurance and pensions section, the revision to miscellaneous is driven by new regulatory and administrative data for insurance corporations and pension funds. Revisions to net tourism, as discussed earlier, are in part due to the inclusion of updated annual ITIS survey data. There are also revisions due to other new data, including from the Department for Business, Energy and Industrial Strategy (BEIS) and the Living Costs and Food (LCF) Survey.

Gross Capital Formation (GCF): A small part of the revisions to the dwellings series are due to the use of updated construction data which now incorporates VAT data. The majority of the revisions are caused by the inclusion of revised source data for 2016 and 2017. Similarly in the inventories series, a small part of the revisions are due to the use of updated construction deflators which now incorporate VAT data.

Detailed revisions to the expenditure components are shown in Table AF.

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.

All of the areas included within our international comparisons saw positive growth in Quarter 3 (July to Sept) 2017, with all countries having growth rates within 0.4 percentage points of each other.

During Quarter 3 2017, several countries, including the UK, experienced the slowest growth of 0.4% among the European countries and G7 shown in Table 3. In this period, Germany experienced the highest growth at 0.8%. Japan experienced 0.6% growth in Quarter 3 2017, whilst France experienced growth of 0.5%. Growth in the UK economy was also the lowest of these countries in both Quarter 1 (Jan to Mar) and Quarter 2 (Apr to June).

The European Union (EU28) grew by 0.6%, marking 18 consecutive quarters of positive growth and in the same period, the group of Euro Area countries (EA19) grew by 0.8%.

All G7 countries are currently above pre-economic downturn peaks except for Italy whose GDP remains 6.0% below the pre-downturn peak (Quarter 1 2008). Canada shows signs of the strongest recovery at 17.5%, while the USA has the second strongest of 15.3%. The UK has the fourth strongest rate at 10.2%.

The data used for these international comparisons are gathered from the Organisation for Economic Co-operation and Development’s website excluding the data from the UK, which is compiled within Office for National Statistics.

Release content

All data included within this release are seasonally adjusted.

Economic context

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

Business investment

Further details on business investment along with revision triangles and a real time database are available within the datasets of the Business investment release, published on 22 December 2017.

Index of Services

The Index of Services publication was published on 22 December 2017 and includes data for October 2017.

National accounts articles

We have published an article detailed the scope of the UK National Accounts Blue Book 2018 publication. Further articles discussing the methodological changes and impacts will be published and available from the National accounts articles web page.

Use of Value Added Tax (VAT) in the UK National Accounts articles

We have published a number of articles explaining how VAT turnover data has been incorporated into the UK National Accounts estimates. The latest article discusses the impact of using VAT data in this quarterly national accounts publication.

GDP release schedule consultation

We ran a consultation on proposed changes to the gross domestic product (GDP) release schedule and the introduction of monthly GDP estimates, which closed on 14 September 2017. We published our response to the consultation on 19 October 2017.

Public service productivity

The upcoming Public service productivity release on 5 January 2018 contains a number of methods improvements, which result in data for the health component of government final consumption expenditure being different from those currently used in the national accounts. We plan to include these changes in the June edition of the Quarterly national accounts consistent with Blue Book 2018. All else being equal, the indicative impact of these changes on annual chained volume measure GDP growth is no greater than 0.1 percentage points.

UK Economic Accounts (UKEA)

Office for National Statistics (ONS), like all government departments, has to ensure all of its outputs meet accessibility guidelines. As a result, from the Quarter 4 (Oct to Dec) 2017 (29 March 2018) release onwards, we will no longer be publishing a PDF file of the UK Economic Accounts (UKEA). The data contained in the current PDF file will continue to be available within the UKEA datasets that are currently published.

The Gross Domestic Product (GDP) Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• uses and users of the data

• how the output was created

• the quality of the output including the accuracy of the data

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 issues

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 “Validation and quality assurance” section in the Quality and Methodology Information report 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 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 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 quarter where the output data takes the lead due to 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 datasets in this release, have a target limit of plus or minus £2,000 million on any quarter. To achieve the balance through alignment, balancing adjustments are applied to the expenditure and income components of GDP as required. They are applied to those individual components where data content is particularly weak in a given quarter due to a high level of forecast content.

The size and direction of the quarterly alignment adjustments in Quarter 3 2017 indicate that in this quarter the level of expenditure is higher and the level of income is lower than the level of output before the alignment adjustment is taken into account.

Table 4 shows the balancing adjustments applied to the GDP estimates in this publication.

Further information

We are committed to ensuring all information provided is kept strictly confidential and will only be used for statistical purposes. Further details regarding confidentiality can be found in the respondent charters for businesses and households.