National Statistical

Gross Domestic Product – better known as ‘GDP’ – remains the leading internationally-recognised indicator of economic activity and growth. In common with other countries, the ONS updates methods and sources we use to measure the GDP of the United Kingdom. In this post, Craig McLaren takes us through this year’s improvements.   

Today we have published updated estimates of GDP from 1997 up to 2023, which will be published in the ‘Blue Book’ and adopted in our headline figures at the end of September. While the size of the economy now captured by GDP has increased, the long-term pattern of growth is broadly unchanged.   

The biggest impact this year is the inclusion of improved research & development (R&D) data. A couple of years ago we improved our data source measure of R&D by sending our main survey to more small companies and using HMRC R&D tax credit data for top performing businesses to supplement the sample, to ensure our figures captured the full range of R&D taking place across the economy. This year we are including these new figures for the first time in headline GDP. This has the effect of increasing the size of the economy in every year as the improved data showed that more R&D, and therefore more economic activity overall, was taking place. While this improvement mainly affects the level of GDP, it also makes a positive contribution to growth over time, particularly in more recent years.  

We have also made some important improvements to the way we measure the activities of large multinational companies. Previously, if a UK-based company had a factory manufacturing products abroad, we would often record this manufacturing as a foreign-based activity and treat the products sent back to the UK as an import while not recording the products sold as exports to other countries. However, following a pilot two years ago, we have now worked in partnership with multinational companies in the pharmaceutical sector to ensure their output around the world is being recorded more accurately.  

This work has had the effect of boosting pharmaceuticals and the manufacturing sector as their directly owned production abroad now counts towards UK GDP. The pharmaceuticals review also has the net effect of reducing the UK’s trade in goods deficit, as many UK-owned goods made abroad are no longer counted as imports when they enter the UK, while UK-owned goods produced and sold overseas are now being recorded as UK exports.  

One of the benefits of these improved data on these businesses is that the three measures of GDP – output, income and expenditure – now move a little closer together, as our data on turnover, profits, employment and exports now align better.  

In the coming years we will continue to enhance how we measure the impact of globalisation on all other industries. Though, it must be said, across all industries any impacts may differ. 

We’ve also revised up our estimates for growth in 2022, primarily due to later data from Corporation Tax returns – which we don’t have when we first produce balanced, annual data. These new data shows that profits were higher than previously estimated, thus boosting growth in that year.  

Updated information on investment in companies’ own software has also boosted our estimates for overall business investment, and therefore total GDP, in the most recent years.  

This year’s figures include improvements to the way education is measured, with an updated method for measuring absence rates, meaning that the decline in education in 2020 was not as big as we previously estimated, However, we also now estimate that education recovered less quickly in the years following the pandemic, meaning the sector, overall, has now grown slightly less than previously estimated.  

As we previously announced, there was a problem with the way our business inflation figures were produced (a process called chain linking, which ensures data are comparable over time) which meant we had to correct these input price data at a detailed level. Overall, the impact of these new data did lead to a small downward change to GDP in 2022 and conversely a small upward change in 2023. However, both these impacts were more than offset by the improvements set out above in the latest years.  

Overall, there is little impact on growth from all these improvements, with average annual growth over the period 1998 to 2023 remaining at 1.8% and average quarterly growth remaining at 0.5%.  

Even for the more recent period from 2020, when the impacts of the pandemic and Ukraine War led to more uncertainty around early estimates, the average quarterly revision was only +0.03 percentage points, though there have understandably been individual quarterly changes in each direction. We now estimate that at the end of 2023, the economy was 2.2% above its pre-pandemic peak, up a little from the previous estimate of 1.9%. 

These improvements announced today help ensure we can continue to provide high quality estimates of the size and shape of our ever-changing and increasingly digital and globalised economy.