Economic well-being, UK: January to March 2018

• Gross domestic product (GDP) per head grew by 0.5% in real terms in Quarter 1 (Jan to Mar) 2018 compared with the same quarter a year ago.

• Net national disposable income (NNDI) per head - which takes account of the depreciation of assets and the UK’s foreign income balance - fell by 0.3% compared with the same quarter a year ago, but increased by 0.6% compared with last quarter.

• Real household disposable income (RHDI) per head increased by 1.4%, its highest increase on an annual basis since Quarter 4 (Oct to Dec) 2015.

• The UK’s recent RHDI (including NPISH) growth is behind that of international groupings; between Quarter 3 (July to Sept) 2016 and Quarter 4 2017, RHDI (including NPISH) per head in the UK has fallen by an average of 0.5% per quarter, whereas for the Organisation for Economic Co-operation and Development (OECD) it has grown by 0.3% and for the EU by 0.4%.

• Consumers reported an improvement in their perception of the financial and general situation of the economy in the latest month, however, the general perception of the economy remains negative.

This section presents the economic well-being indicators for the UK for Quarter 1 (Jan to Mar) 2018.

Figure 1: Economic well-being indicators, UK, Quarter 1 (Jan to Mar) 2018

This release reports measures of economic well-being in the UK. Rather than focusing on traditional measures such as gross domestic product (GDP), these indicators aim to provide a more rounded and comprehensive basis for assessing changes in material well-being.

We prefer to measure economic well-being on a range of measures rather than a composite index. The framework and indicators used in this release were outlined in Economic Well-being, Framework and Indicators, published in November 2014.

Our 10 main economic well-being indicators are:

• gross domestic product (GDP) per head – the value of goods and services produced within the UK economy, divided by the number of people; this helps to remove the effects a growing population has on overall growth figures

• net national disposable income per head – this measure is similar to GDP but it takes into account the depreciation of assets – such as the day-to-day wear and tear on vehicles and machinery – and the income generated by foreign-owned businesses in the UK, but includes the money made by UK companies based in other countries

• real household disposable income per head – the total amount of money that households have to spend on consumption, or to save and invest, after taxes, National Insurance, pension contributions and interest have been paid, divided by the number of people

• real household final consumption expenditure per head – the total amount that households spend on goods and services, divided by the number of people

• real median equivalised household income – is based on survey results and represents the middle of the income distribution and is a good indication of the changing standard of living of the “typical” household in terms of income

• whole economy net wealth – represents the market value of financial and non-financial assets in the UK used to generate output, providing an indication of the sustainability of current levels of production and corresponding income flows

• household net wealth – market value of financial and non-financial assets in the household sector

• perception of financial situation – a subjective assessment of individuals’ own financial situation over the past 12 months

• unemployment rate – the proportion of those out of work who are actively looking for a job as a share of all those working or looking for a job

• inflation – change in prices of goods and services purchased by UK consumers; this is measured using our most comprehensive inflation index, Consumer Prices Index including owner occupiers’ housing costs (CPIH)

Real GDP per head

Growth in real gross domestic product (GDP) per head was 0.1% in Quarter 1 (Jan to Mar) 2018 compared with the previous quarter – a slowdown of 0.1 percentage points compared with the growth rate in Quarter 4 (Oct to Dec) 2017. This was also a slower growth rate than the 0.2% quarterly increase in GDP, due to relatively greater population growth over the same period. Additionally, GDP per head grew by 0.5% between Quarter 1 2017 and Quarter 1 2018 – down 0.2 percentage points from growth of 0.7% between Quarter 4 2016 and Quarter 4 2017.

Growth in GDP per head in Quarter 1 2018 was 0.2 percentage points lower than the average quarterly growth rate over the past four years.

Real NNDI per head

Real net national disposable income (NNDI) per head decreased by 0.3% between Quarter 1 2017 and Quarter 1 2018, compared with a 0.5% increase in GDP per head over the same period. Despite NNDI per head decreasing compared with the same quarter a year ago, it rose by 0.6% in Quarter 1 2018 compared with Quarter 4 2017.

As shown in the Economic well-being indicators at-a-glance section, NNDI per head represents the income available to all residents in the UK. There are two main differences between GDP per head and NNDI per head.

First, not all income generated by production in the UK will be payable to UK residents. For example, a country whose firms or assets are predominantly owned by foreign investors may well have high levels of production, but a lower national income once profits and rents flowing abroad are taken into account. As a result, the income available to residents would be less than that implied by measures such as GDP.

Second, NNDI per head is adjusted for capital consumption. GDP is “gross” in the sense that it does not adjust for capital depreciation, that is, the day-to-day wear and tear on vehicles, machinery, buildings and other fixed capital used in the productive process. It treats such consumption of capital as no different from any other form of consumption, but most people would not regard depreciation as adding to their material well-being.

Net income from abroad comprises several components that are not published on a quarterly basis. In this analysis, net income from abroad is derived using published information on net national disposable income, GDP and capital consumption. Net income from abroad equals net national disposable income minus GDP plus capital consumption.

Figure 3 examines how changes in GDP per head, capital consumption per head and net income from abroad per head have influenced NNDI per head since Quarter 1 2008.

These data show both GDP per head and NNDI per head took until Quarter 2 (Apr to June) 2015 to regain their economic downturn levels of Quarter 1 2008 (where cumulative growth equals zero). NNDI per head was 2.6% above its pre-economic downturn level in Quarter 1 2018, which was the same level for GDP per head.

In the earlier years of the series, the contraction in GDP per head during the economic downturn was the main reason for a 9.8% decline in NNDI per head between Quarter 1 2008 and Quarter 1 2009. After Quarter 1 2009, GDP per head recovered – highlighted in Figure 3 by the reduced negative cumulative contribution from GDP per head – while net income from abroad remained steady.

As a result, NNDI per head grew by an average of 0.4% between Quarter 1 2009 and Quarter 4 2011. However, following this, the UK’s net income balance with the rest of the world deteriorated. The effect was to introduce a gap between GDP per head and NNDI per head. Between Quarter 4 2011 and Quarter 4 2015, GDP per head increased by an average of 0.4% per quarter compared with average quarterly growth in NNDI per head of 0.1%. Changes in the balance of income over time have been discussed in Economic well-being, UK: July to September 2017.

Real household disposable income per head

RHDI increased by 1.4%, the highest year-on-year increase since 2015 Quarter 4 2015. Figure 4 highlights the contributions to growth from different components of RHDI real household disposable income (RHDI).

Focusing on the components that have the largest effect, compensation of employees, which consists of wages, continued to be the largest positive contributor at 2.9 percentage points in Quarter 1 2018 (compared with a year ago).

The impact of prices continued to be the largest negative contributor with a value of negative 2.2 percentage points in Quarter 1 2018.

Considering the contributions that have changed over recent quarters, net property income is a positive contributor to RHDI growth for the past two quarters, most recently adding 0.6% to RHDI growth. Previously, it negatively contributed to RHDI growth every quarter from Quarter 2 2016. Net property income captures the interest and dividends received on savings and investments, minus the interest paid for loans and mortgages.

Similarly, net benefits minus social contributions (compared with the same quarter a year ago) continue to make a negative contribution to RHDI growth in Quarter 1 2018, which they have done consecutively for nine quarters.This reflects slower than average RHDI growth since Quarter 1 2016 and is in contrast to its highest contribution to RHDI growth in Quarter 3 2015, in which it contributed 2.1% to overall growth.

Net social benefits minus contributions has two components. Benefits include all benefits provided by government and employers in cash and through social insurance schemes. Additionally, actual social contributions, which consist of payments made by employers for the benefit of their employees to insurers, as well as imputed social contributions, which represents the counterpart to unfunded social benefits paid directly by employers to their employees or former employees.

Current taxes on income continued to make a negative contribution as it did last quarter but by a lesser amount, it contributed negative 0.1 percentage points after previously contributing negative 0.9 percentage points.

Household expenditure

Growth in real household spending per head was 0.1% in Quarter 1 2018 compared with the previous quarter. This means that household spending per head has now grown consecutively from Quarter 1 2017.

As highlighted in Figure 1, real household spending per head in Quarter 1 2018 was 2.1% higher than its pre-economic downturn level, while RHDI per head was 3.2% above its pre-economic downturn level.

This section compares three headline indicators of economic well-being over the last 10 years – gross domestic product (GDP) per head and real household disposable income (RHDI) (including non-profit institutions serving households (NPISH)), as well as consumer confidence – in the UK and a selection of EU countries.

Figure 5 shows that growth in the UK’s GDP per head over the period Quarter 1 (Jan to Mar) 2007 to Quarter 4 (Oct to Dec) 2017 has been weaker than both the Organisation for Economic Co-operation and Development (OECD) and the EU, though more comparable to that of the EU.However, more recently the UK’s growth has begun to diverge from the EU, with the UK growth rate being slower than that of the EU: between Quarter 1 2017 and Quarter 4 2017 the UK grew by 0.4% compared with 1.8% in the EU. In this period the UK’s GDP per head has been the slowest of all the G7 countries.

Comparing GDP per head growth rates for the period after the EU referendum vote (that is, Quarter 3 (July to Sept) 2016 to Quarter 4 2017), the UK’s GDP per head has grown at the slowest rate of all the G7 countries. The UK grew by 0.3% per quarter, at a slower rate than the G7 economies of Italy and Germany, which grew by 0.4% and 0.6% respectively. In this more recent period, Poland has grown the fastest of all the countries in this analysis, with a growth rate of 1.2%. However, when compared with all countries in the EU, Poland had the fifth-fastest growth rate during the period.

Real household disposable income per head

Switching over to focus more on overall household income, Figure 6 shows that throughout Quarter 1 2007 to Quarter 4 2017 the UK’s real household disposable income (RHDI) (including non-profit institutions serving households (NPISH)) per head was also below that of international groupings (the OECD and the EU).

From Quarter 1 2007 to Quarter 4 2017, the UK’s RHDI per head grew by an average of 0.0% (to one decimal place) per quarter, whereas that of the OECD grew by 0.2%. However, the EU has grown by 0.1% suggesting the UK is similar to the EU in terms of average quarterly growth. Compared with the G7 countries in this analysis (Germany and Italy), Germany grew at a faster rate than the UK whereas Italy experienced negative RHDI growth. Italy had a negative RHDI quarter-on-quarter growth rate of 0.2%, whereas Germany experienced an average quarterly increase of 0.2%.

Recently, RHDI growth in the UK has also been negative, unlike any of the countries in our study as well as the international groupings, which all experienced growth. Between Quarter 3 (July to Sept) 2016 and Quarter 4 2017, the RHDI (including NPISH) per head rate in the UK has fallen by an average of 0.5% per quarter, whereas the OECD rate has grown by 0.3% and the EU rate by 0.4%. Keeping to the same time frame, if you compare the UK growth rate with the G7 countries in this analysis, the UK’s performance is worse than that of either Germany or Italy. Italy experienced a growth rate of 0.3% and Germany a slightly faster one of 0.4% per quarter. Poland again grew the fastest of the countries in our analysis at 0.7% per quarter.

The ECB Household sector report (as well as ONS data) shows the UK was the only country of those selected that did not experience an RHDI per head growth (annually) in Quarter 3 2017, which was caused by the UK having the joint- highest impact of prices and a negative net property income.

Interestingly, Finland had an increase of 2.2% in RHDI per head but none of this was due to compensation of employees since its contribution over this time was 0%. Instead, Finland’s growth was partly due to having a positive contribution from current taxes on wealth of 1.1%, while all other countries in this sample had a negative current tax on wealth. The other factor was Finland having the largest social benefits and other social transfer contributions growth.

Recovery rates of RHDI since the financial crisis also differ significantly. The RHDI rates of Poland and Germany were never below that of their Quarter 2 2007 levels. The UK, on the other hand, recovered to its Quarter 1 2007 level in Quarter 4 2014, whilst Italy are yet to reach their Quarter 1 2007 level, currently at 9.4% below it.

Consumer confidence

Having explored different aspects of households’ economic well-being across Europe and the OECD countries, and the UK’s relative performance across these indexes, it is interesting to compare people’s perceptions over the same period. The Eurobarometer’s consumer confidence is an aggregate value of people’s perceptions of the next 12 months of the financial situation, general economic situation, unemployment and saving. A positive balance means that consumers expect an improvement within the economy, a zero balance indicates no change and a negative balance indicates a perceived future worsening. Previous analysis has explored the relationships between these perceptions and economic outcomes in the UK.

Figure 7 shows that of the countries compared, the UK and Italy are the only countries in which their latest value on the confidence indicator is negative. Considering the components allows us to compare and contrast the two countries. In the analysis that follows in the spotlight, all Eurobarometer data are presented as rounded whole figures.

In the two years from March 2016 to March 2018, the UK’s consumer confidence balance has decreased from positive 1 to negative 3, while Italy’s has increased slightly from negative 7 to negative 6. They have both experienced negative unemployment expectations, which contributed to the fall in consumer confidence – the UK’s perception has been negative since September 2014 and Italy’s since September 2015. However, they differed when it comes to saving expectations. Of the various components of the confidence indicator, the UK’s most positive component was savings with a value of positive 20 in March 2018. Italy, on the other hand, had a negative perception of saving at negative 10.

Comparing the trends of economic indicators of GDP per head and RHDI per head with the economic sentiment indicators highlights differences between outcomes and perceptions. Despite Poland being the highest growing in our sample in terms of GDP per head and RHDI, it is not the highest on the confidence indicator and is lower than that of Germany and Finland throughout most of the time series. The UK’s confidence indicator is more in line with its RHDI and GDP per head values. Since the EU referendum vote the UK’s RHDI per head and GDP per head have grown at the slowest rate, and over this same period the UK’s confidence indicator has decreased by the greatest amount of the countries compared. Finland’s consumer confidence was consistently above the rest of the countries compared, yet since Quarter 2 (Apr to June) 2012 it has had the lowest GDP per head growth of the countries chosen.

Notes for: Spotlight: International comparisons of economic well-being

1. An addition to the text within the consumer confidence analysis in the spotlight section has been made to clarify that the reference to Finland’s GDP per head should have read GDP per head growth instead of GDP per head. We apologise for any inconvenience.

It is important to consider sentiment, along with other measures of economic well-being, to improve our understanding of how changes in official measures of the economy are perceived by individuals. The Eurobarometer Consumer Survey, conducted by GFK on behalf of the European Commission, provides information regarding perceptions of the economic environment. The Quality and methodology section provides more information regarding the Eurobarometer Consumer Survey.

General economic situation and perception of financial situation

The Eurobarometer Consumer Survey asks consumers their views on the state of the general economic situation over the previous 12 months, as well as the next 12 months. A positive balance means that consumers perceived an improvement within the economy, a zero balance indicates no change and a negative balance indicates a perceived worsening (Figure 8).

The survey also asks respondents about their own financial situation over the past 12 months. In Quarter 1 (Jan to Mar) 2018, the average aggregate balance for own financial situation was positive 1.4 – an increase from negative 1.6 recorded in the previous quarter. GFK analysis suggests this improvement was due to rising wages starting to outstrip declining inflation. If this analysis is correct, and as there are suggestions that higher inflation may be easing, then it will be interesting to continue tracking UK’s responses to their financial situation over the past 12 months.

Between Quarter 4 (Oct to Dec) 2017 and Quarter 1 2018, the perception of the general economic situation improved marginally from a balance of negative 27.9 to negative 26.9. The balance has now improved for two consecutive quarters, but remains negative and has done so for 11 consecutive quarters. Analysis by GFK suggests consumers perception improved due to high employment with low interest rates and some movement on EU referendum agreements.

Between 2015 and 2016, the total net wealth per head of the UK economy increased by 8.0%. The largest contribution was from the households sector.

Between 2015 and 2016, household wealth per head increased by 7.2%, driven mainly by a £6 billion increase in the wealth of net financial assets and liabilities (for example, household financial assets mainly comprise currency and deposits, equity and investment funds shares, and assets held with life insurance companies and pension funds. Household financial liabilities mainly comprise mortgages and other loans) in 2016.

In March 2018, the 12-month rate of the Consumer Prices Index including owner occupiers’ housing costs (CPIH) grew less quickly, at 2.3%, down from 2.7% in December 2017. This is the second consecutive quarterly decrease, previously there had been eight consecutive quarters of inflation increases. The main contributors to the decrease in the rate of inflation came from prices for clothing and footwear rising by less than they did a year ago.

The unemployment rate in the three months to March 2018 was 4.2%, a decrease from the rate of 4.3% recorded in December 2017. The employment rate (the proportion of people aged from 16 to 64 years who were in work) increased to 75.6% in March 2018 from 75.2% in the last quarter.

The estimate of median UK household disposable income was £27,300 in the financial year ending 2017; this was £600 higher than the previous year and £1,600 higher than the pre-downturn value of £25,700 in the financial year ending 2008 – after accounting for inflation and household composition.

The wealthiest 10% of households owned 44% of aggregate total wealth in July 2014 to June 2016 and were 2.3 times wealthier than the second wealthiest 10%. Over the same period, the wealthiest 10% of households were five times wealthier than the bottom 50% of households (the bottom five deciles combined), who owned 9% of aggregate total wealth.

Internal

UK Economic Accounts, Table 1.1.5 (Office for National Statistics (ONS)

The National Balance Sheet (ONS)

Wealth and Assets Survey (ONS)

Household disposable income and inequality (ONS)

Labour market statistics (ONS)

Consumer Price Indices (ONS)

External

Eurobarometer Consumer Survey (produced by GFK on behalf of the European Commission)

International comparisons of real household (including non-profit institutions serving households (NPISH)) disposable income per head index (Organisation for Economic Co-operation and Development (OECD))

International comparisons of Gross domestic product (GDP) per head index (OECD)

Contributions to growth in real household (including NPISH) disposable income per head (European Central Bank)

Release policy

The data used in this version of the release are the latest available for March 2018. The UK resident population mid-year estimates used in this publication are those published on 29 June 2017. Per head calculations are based on all residents of the UK regardless of age.

Basic quality and methodology information

Basic quality and methodology information for all indicators in this statistical bulletin are available:

• National Accounts Quality and Methodology Information report

• Consumer Price Indices Quality and Methodology Information report

• Wealth and Assets Survey Quality and Methodology Information report

• Effects of taxes and benefits Quality and Methodology information report

• Labour market Quality and Methodology Information reports

These contain important information on:

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

• users and uses of the data

• how the output was created

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

Revisions and reliability

All data in this release will be subject to revision in accordance with the revisions policies of their original release. Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. We currently provide an analysis of past revisions in statistical bulletins, which present time series. Details of the revisions are published in the original statistical bulletins.

Most revisions reflect either the adoption of new statistical techniques or the incorporation of new information, which allows the statistical error of previous estimates to be reduced.

Only rarely are there avoidable “errors”, such as human or system failures and such mistakes are made quite clear when they do occur.

For more information about the revisions policies for indicators in this release:

• National Accounts revisions policy – covers indicators from the quarterly national accounts, UK Economic Accounts and the national balance sheet

• Wealth and Assets Survey revisions policy – covers indicators on the distribution of wealth

• Effect of taxes and benefits on household incomes revisions policy – covers indicators on the distribution of income

• Labour market statistics revisions policy – covers indicators from labour market statistics

• Consumer Price Inflation revisions policy – covers indicators from consumer price indices

Our Revisions policies for economic statistics webpage is dedicated to revisions to economic statistics and brings together our work on revisions analysis, linking to articles, revisions policies and important documentation from the former Statistics Commission's report on revisions.

Data that come from the Eurobarometer Consumer Survey and Understanding Society releases are not subject to revision as all data are available at the time of the original release. These data will only be revised in light of methodological improvements or to correct errors. Any revisions will be made clear in this release.

Interpreting the Eurobarometer Consumer Survey

The Eurobarometer Consumer Survey, sourced from GFK on behalf of the European Commission, asks respondents a series of questions to determine their perceptions on a variety of factors, which collectively give an overall consumer confidence indicator. For each question, an aggregate balance is given which ranges between negative 100 and positive 100.

Balances are the difference between positive and negative answering options, measured as percentage points of total answers. Values range from negative 100, when all respondents choose the negative option (or the most negative one in the case of five-option questions) to positive 100, when all respondents choose the positive (or the most positive) option.

The questions used in this release are:

Question 1: How has the financial situation of your household changed over the last 12 months? It has...

• got a lot better

• got a little better

• stayed the same

• got a little worse

• got a lot worse

• don’t know

Question 3: How do you think the general economic situation in the country has changed over the past 12 months? It has...

• got a lot better

• got a little better

• stayed the same

• got a little worse

• got a lot worse

• don’t know

Question 5: How do you think that consumer prices have developed over the last 12 months? They have...

• risen a lot

• risen moderately

• risen slightly

• stayed about the same

• fallen

• don’t know

Further information on this consumer survey is available from the Business and Consumer Survey section of the European Commission website.

Measuring national well-being

This article is published as part of our Measuring National Well-being programme. The programme aims to produce accepted and trusted measures of the well-being of the nation – how the UK as a whole is doing. Further information on Measuring National Well-being is available with a full list of well-being publications.