Second Estimate of GDP: Quarter 3 (July to Sept) 2015

• UK GDP in volume terms was estimated to have increased by 0.5% between Quarter 2 (Apr to June) 2015 and Quarter 3 (July to Sept) 2015, unrevised from the preliminary estimate of GDP published 27 October 2015, marking eleven consecutive quarters of positive growth

• GDP in volume terms increased by 6.4% between Quarter 1 (Jan to Mar) 2008, the pre-economic downturn peak, and Quarter 3 2015

• Between Quarter 3 2014 and Quarter 3 2015, GDP in volume terms increased by 2.3%, unrevised from the previously published estimate

• GDP in current prices increased by 0.6% between Quarter 2 2015 and Quarter 3 2015

• GDP per head in volume terms was estimated to have increased by 0.3% between Quarter 2 2015 and Quarter 3 2015. Between 2013 and 2014, GDP per head increased by 2.2%

Change in GDP is the main indicator of economic growth. There are 3 approaches used to measure GDP.

Gross value added (GVA) is the sum of goods and services produced within the economy less the value of goods and services used up in the production process (intermediate consumption). The output approach measures GVA at a detailed industry level before aggregating to produce an estimate for the whole economy. GDP (as measured by the output approach) can then be calculated by adding taxes and subtracting subsidies (both only available at whole economy level) to this estimate of total GVA (more information on creating the preliminary estimate of GDP is available on our methods and sources page).

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

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 process, that is, final consumption (not intermediate) for the whole economy.

The third estimate of GDP is based on revised output data, together with updated data from expenditure and income components. In the Quarterly National Accounts, the output GVA and GDP estimates are balanced with the equivalent income and expenditure approaches to produce headline estimates of GVA and GDP. Further information on all 3 approaches to measuring GDP can be found in the Short Guide to National Accounts. (105.5 Kb Pdf)

All data in this bulletin are seasonally adjusted estimates and 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.

Growth for GDP and its components is given between different periods. Latest year-on-previous-year gives the annual growth between one calendar year and the previous. Latest quarter-on-previous-quarter growth gives growth between one quarter and the quarter immediately before it. Latest quarter-on-corresponding-quarter-of-previous-year shows the growth between one quarter and the same quarter a year ago.

In line with national accounts revisions policy, the only period open for revision in this release is Quarter 3 (July to Sept) 2015.

About the Second Estimate of GDP

The second estimate of GDP is produced around 7 and a half weeks after the end of the quarter to provide a timely estimate of GDP. At this stage the data content of this estimate from the output measure of GDP has risen to around 80% of the total required for the final output based estimate. There is also around 50 to 60% data content available to produce estimates of GDP from the expenditure and income approaches.

The quality of the GDP estimate

Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. The estimate is subject to revisions as more data become available, but between the preliminary and third estimates of GDP, revisions are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal.

All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. The estimate of GDP, however, is currently constructed from a wide variety of data sources, some of which are not based on random samples and as such it is very difficult to measure the sampling error. While development work continues in this area, like all other G7 national statistical institutes, we do not publish a measure of the sampling error associated with GDP.

As seen in Figure 1, GDP in the UK grew steadily during the 2000s until a financial market shock affected UK and global economic growth in 2008 and 2009. Economic growth resumed towards the end of 2009, but generally at a slower rate than the period prior to 2008. From the peak in Quarter 1 (Jan to Mar) 2008 to the trough in Quarter 2 (Apr to June) 2009 GDP decreased by 6.1%.

This can be compared to previous economic downturns in the early 1980s and early 1990s, which saw lower levels of impact on GDP. In the early 1990s downturn, GDP decreased by 2.2% from the peak in Quarter 2 1990 to the trough in Quarter 3 1991. In the early 1980s downturn, GDP decreased by 5.6% from the peak in Quarter 2 1979 to the trough in Quarter 1 1981.

From Quarter 3 (July to Sept) 2009 growth continued to be erratic, particularly between 2010 and 2012 with two quarters recording negative growth. This two-year period coincided with special events (for example severe winter weather in Quarter 4 (Oct to Dec) 2010 and the Diamond Jubilee in Quarter 2 2012) that are likely to have affected growth both adversely and positively. Since 2013, GDP has grown steadily, with the economy exceeding pre-downturn peak levels in Quarter 2 2013.

Quarter 3 2015 has shown continued strength with GDP growing by 0.5% compared with the previous quarter; by 2.3% between Quarter 3 2014 and Quarter 3 2015, and by 2.9% between 2013 and 2014. GDP has now increased for 11 consecutive quarters, breaking a pattern of slow and erratic growth from 2009.

Annex A contains output component growth rates back to Quarter 1 (Jan to Mar) 2014. (38 Kb Excel sheet)

Three of the four main output industrial groupings within GDP showed increases in Quarter 3 (July to Sept) 2015 with only construction falling in this period. Within production, there were both increases and decreases, but there was an overall increase in total production. All components within the service industries showed increases.

Production output increased by 0.2% in Quarter 3 2015 compared with Quarter 2 (Apr to June) 2015, revised downwards by 0.1 percentage points from the previously published estimate. Within the production sub-industries, output from mining and quarrying, including oil and gas extraction, increased by 2.8%; manufacturing (the largest component of production) decreased by 0.4% (Figure 2), and electricity, gas, steam and air conditioning supply industries increased by 1.0%. Water supply and sewerage fell by 0.2%.

When comparing Quarter 3 2015 with Quarter 3 2014, production output increased by 1.2%, revised down 0.1 percentage points from the previously published estimate. Mining and quarrying, including oil and gas extraction, increased by 11.8%, while water supply and sewerage increased by 5.4%. Manufacturing fell by 0.9% between these periods while the electricity, gas, steam and air conditioning supply industries decreased by 1.5%.

Construction output decreased by 2.2% in Quarter 3 2015, unrevised from the previously published estimate. Construction output fell by 0.1% between Quarter 3 2014 and Quarter 3 2015, unrevised from the previously published estimate.

The service industries increased by 0.7% in Quarter 3 2015 (Figure 3), unrevised from the previous estimate, marking the eleventh consecutive quarter of positive growth. This follows a 0.6% increase in Quarter 2 2015.

Output of the distribution, hotels and restaurants industries increased by 0.8% in Quarter 3 2015, following a 1.0% increase in Quarter 2 2015. The increase in the latest quarter was largely due to retail trade, except of motor cars and motor cycles and wholesale trade except of motor vehicles and motorcycles.

Output of the transport, storage and communication industries increased by 1.2% in Quarter 3 2015, following a 1.4% increase in Quarter 2 2015. The largest contributor to the increase was computer programming, consultancy and related activities.

Business services and finance industries’ output increased by 1.0% in Quarter 3 2015, following a 0.6% increase in Quarter 2 2015. The largest contributors to the increase were real estate, services to buildings and landscape activities and travel agency, tour operators and other reservation services.

Output of government and other services increased by 0.1% in Quarter 3 2015, after increasing by 0.1% in Quarter 2 2015. In the latest quarter the largest upward contribution came from human health activities.

Further detail on the service industries’ lower level components can be found in the Index of Services statistical bulletin published on 27 November 2015.

Gross value added (GVA) excluding oil and gas extraction increased by 0.4% in Quarter 3 2015 following a 0.5% increase in Quarter 2 2015.

Figure 4 shows the path of GDP and its headline industries (this excludes agriculture, and includes manufacturing which is a sub-component of production) relative to their level of output achieved in Quarter 1 2008.

In the decade prior to the downturn, the service industries grew steadily, while production output was broadly flat over the same period. Construction activity grew strongly in the early part of the decade, and although there was a temporary decline in the mid-2000s - this was reversed by the end of 2007.

Industries have shown differing trends following the recent economic downturn. The construction, manufacturing, and production industries were more acutely affected by the deterioration in economic conditions, with output falling from peak to trough by 17.1%, 12.3% and 10.6% respectively. In contrast, output in the services industry only fell by 4.1% from its peak to trough.

Production activity began to grow again in 2010, and the manufacturing and the construction industries showed particular strength, however neither industry sustained this growth. Production output fell in both 2011 and 2012, falling below levels seen at the depth of the downturn in 2009. Construction output also fell sharply in 2012, with output falling close to its 2009 trough after further contraction in Quarter 1 2013. Construction output improved throughout 2014 and has continued this trend in the most recent quarter. Although, there has been widespread growth across all major components of GDP since the start of 2013, the service industry remains the largest and steadiest contributor to overall economic growth, and is the only headline industry in which output has exceeded pre-downturn levels.

Figure 5 shows the average compound quarterly growth rate experienced over the 5 years prior to the economic downturn in 2008 to 2009, the average growth rate experienced between Quarter 3 (July to Sept) 2009 and Quarter 2 2014 (5 years following the downturn), and the current quarterly growth rate observed in the most recent period (Quarter 3 2015). Compound average growth is the rate at which a series would have increased or decreased if it had grown or fallen at a steady rate over a number of periods. This allows the composition of growth in the recent economic recovery to be compared to the long run average.

The UK experienced slightly slower average compound GDP growth in the five years following the economic downturn compared with the five years prior: this is also true of the services industry. Figure 5 shows that in Quarter 3 2015, both the services and production industries outperformed the post-downturn average rate of growth, but manufacturing and construction have been relatively weak falling by 0.4% and 2.2% respectively. In Quarter 3 2015 the transport, storage and information communication industries have shown particular strength when compared to both the production 5 year average, prior and post downturn.

It should be noted that the current quarterly growth rate (the third column for each industry section in Figure 5), is based on only 1 data point. Consequently users should use caution when making direct comparisons with the long run averages.

Annex B contains expenditure component growth rates back to Quarter 1 (Jan to Mar) 2014. (27 Kb Excel sheet)

Gross domestic expenditure (the sum of all expenditure by UK residents on goods and services that are not used up or transformed in a productive process) increased by 1.9% in Quarter 3 (July to Sept) 2015. Annually, between 2013 and 2014 gross domestic expenditure increased by 3.2%.

Household final consumption expenditure (HHFCE) increased by 0.8% in Quarter 3 2015, and has increased for 9 consecutive quarters (Figure 6). When compared with the same quarter a year ago, HHFCE has been rising each quarter since Quarter 4 (Oct to Dec) 2011, and was 3.1% higher in Quarter 3 2015 than in the same period a year ago. Between 2013 and 2014, HHFCE increased by 2.7%.

Note that, in the quarters of 2013 only, “National” HHFCE chained volume measure data is not the sum of its components.

Government final consumption expenditure increased by 1.3% in Quarter 3 2015, following a 0.4% increase in Quarter 2 2015. Between Quarter 3 2014 and Quarter 3 2015, government final consumption expenditure increased by 2.4%. Between 2013 and 2014, government final consumption expenditure increased by 1.9%.

Non-profit institutions serving households’ (NPISH) final consumption expenditure fell by 1.3% in Quarter 3 2015, following a 2.9% rise in Quarter 2 2015. Between Quarter 3 2014 and Quarter 3 2015, NPISH final consumption expenditure increased by 1.3%. Annually, NPISH final consumption expenditure increased by 1.9% between 2013 and 2014.

In Quarter 3 2015, gross fixed capital formation (GFCF) was estimated to have increased by 1.3% (Figure 7). Between Quarter 3 2014 and Quarter 3 2015, GFCF increased by 3.4%. GFCF increased by 7.5% between 2013 and 2014. More detail on GFCF can be found in the Business Investment statistical bulletin published on 27 November 2015.

Business investment was estimated to have risen by 2.2% in Quarter 3 2015. Between Quarter 3 2014 and Quarter 3 2015, business investment increased by 6.6%. Annually, business investment increased by 4.6% between 2013 and 2014.

Including the alignment adjustment, the level of inventories increased by £1.0 billion in Quarter 3 2015, following a fall of £3.0 billion in Quarter 2 2015. More information on the alignment adjustment can be found in the Balancing GDP section within the Background Notes of this release.

The trade balance deficit widened from £7.7 billion in Quarter 2 2015 to £14.2 billion in Quarter 3 2015 (Figure 8). The trade position reflects exports minus imports. Following a 1.9% increase in Quarter 2 2015, exports increased by 0.9% in the latest quarter, while imports increased by 5.5% in Quarter 3 2015 following a 2.7% fall in Quarter 2 2015. As stated in the UK Trade bulletin (published on 6 November 2015), there is a divergence between the current price and chained volume estimates of exports and imports of goods. However, despite this issue, net exports is largely unaffected. More information on this divergence can be found in the UK Trade in Goods section within the Background Notes of this release.

Figure 9 shows the quarterly contribution of the expenditure components to the growth of GDP in chained volume measures. For Quarter 3 2015, the largest positive contribution to GDP came from gross capital formation, which contributed 1.2 percentage points. Household final consumption expenditure contributed 0.5 percentage points to GDP; general government final consumption expenditure contributed 0.3 percentage points and NPISH contributed 0.0 percentage points. The only negative contribution to GDP came from net trade which contributed a negative 1.5 percentage points, its weakest contribution on record, following a positive contribution from net trade in Quarter 2 2015.

Annex D contains implied deflator component growth rates back to Quarter 1 (Jan to Mar) 2014. (32.5 Kb Excel sheet)

The GDP implied deflator at market prices for Quarter 3 (July to Sept) 2015 is 1.1% above the same quarter of 2014 (Figure 10). 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 to calculate nominal GDP, not real GDP.

Annex C contains income component growth rates back to Quarter 1 (Jan to Mar) 2014. (23.5 Kb Excel sheet)

GDP at current market prices increased by 0.6% in Quarter 3 (July to Sept) 2015, following a 1.2% increase in Quarter 2 (Apr to June) 2015. GDP at current market prices increased by 3.4% when compared to Quarter 3 2014. In 2014, GDP at current market prices increased by 4.7%.

Compensation of employees – which includes both wages and salaries, and pension contributions, increased by 1.1% in Quarter 3 2015, following an increase of 1.2% in Quarter 2 2015 (Figure 11). Between Quarter 3 2014 and Quarter 3 2015, compensation of employees increased by 4.5%. Between 2013 and 2014, compensation of employees increased by 2.3%.

The gross operating surplus of corporations (effectively the profits of companies operating within the UK), including the alignment adjustment, fell by 0.9% in Quarter 3 2015 compared with the previous quarter; this follows flat growth in Quarter 2 2015 (Figure 12). Between 2013 and 2014 the gross operating surplus of corporations increased by 8.2%. More information on the alignment adjustment can be found in the Balancing GDP section within the Background Notes of this release.

Taxes less subsidies on products and production increased by 0.9% in Quarter 3 2015, following an increase of 2.6% in Quarter 2 2015. Between 2013 and 2014 taxes less subsidies on products and production increased by 4.9%.

Figure 13 shows the contribution made by income components to current price GDP. In Quarter 3 2015, there were positive contributions to GDP from compensation of employees which contributed 0.5 percentage points to GDP and taxes on products and production less subsidies which contributed 0.1 percentage points. Gross operating surplus of corporations’ contributed a negative 0.2 percentage points while the contribution from other income was 0.1 percentage points this quarter.

In Quarter 3 (July to Sept) 2015, GDP per head increased by 0.3% compared with Quarter 2 (Apr to June) 2015. GDP per head is now 0.9% above its pre-downturn peak in Quarter 1 2008, having surpassed it in Quarter 1 2015. Headline GDP exceeded the level of its pre-downturn peak in Quarter 2 2013 and is now 6.4% above its pre-downturn peak (Figure 14).

Between Quarter 3 2014 and Quarter 3 2015, GDP per head increased by 1.7%. Between 2013 and 2014, GDP per head increased by 2.2%.

GDP per head is calculated by dividing GDP in chained volume measures by the latest population estimates and projections. The population estimates and projections used in this release are those published on 25 June 2015.

The estimates in this international comparison section are the latest available estimates published by the respective bodies (referenced) at the time of preparation of this statistical bulletin and may subsequently have been revised.

All areas included within our international comparison, with the exception of Japan, saw positive growth when comparing Quarter 3 (July to Sept) 2015 with Quarter 2 (Apr to June) 2015 (Table 2). The European Union (EU28) grew by 0.4% in the third quarter of 2015 marking 10 consecutive quarters of positive growth (Figure 15). In the same period, the eurozone (EA19) expanded by 0.3%. When comparing Quarter 3 2014 with Quarter 3 2015, EA19 grew by 1.6 % whilst the EU28 expanded by 1.9% (Figure 16).

Germany saw its GDP increase by 0.3% between Quarter 2 2015 and Quarter 3 2015, down 0.1 percentage points from the previous quarter-on-quarter growth. GDP for France also increased by 0.3% in the same period, following no growth in Quarter 2 2015.

In the third quarter of 2015 the USA’s economy increased by 0.5%. Between Quarter 3 2014 and Quarter 3 2015, GDP for the USA increased by 2.2%. GDP for Japan decreased by 0.2% in Quarter 3 2015, following a similar decrease in the previous quarter, although between Quarter 3 2014 and Quarter 3 2015, Japan’s economy grew by 1.1%.

GDP for the Group of Seven (G7) countries increased by 0.4% in Quarter 3 2015, following a 0.6% increase in the previous quarter. When comparing Quarter 3 2014 with Quarter 3 2015, G7 GDP increased by 1.8% and is now 6.1% above its pre-downturn peak in Quarter 1 2008.

More detailed information on these estimates can be found on the Eurostat website. Information on the estimates for the USA can be found on the Bureau of Economic Analysis website; information on the estimates for Japan can be found on the Japanese Cabinet Office website and information for the G7 countries can be found on the Organisation for Economic Co-operation and Development’s website.

GDP and components, previously published on 27 October 2015

Figure 18 shows quarterly revisions between latest and previously published estimates of GDP. Quarter 3 (July to Sept) 2015 is the only period open for revision in this release.