How fast is the UK's economy growing and what is GDP?
- Published
The UK's economy had zero growth in the third quarter of 2024, according to the latest official figures.
The strength of the economy affects things like pay increases for workers and the amount of tax the government can raise to pay for services.
What is GDP and how is it worked out?
GDP stands for gross domestic product, and is a measure of all the economic activity of companies, governments and people in a country.
In the UK, the Office of National Statistics (ONS) publishes new GDP figures every month, external. However, quarterly figures - covering three months at a time - are considered more important.
Most economists, politicians and businesses like to see GDP rising steadily.
That's because it usually means people are spending more, extra jobs are created, more tax is paid and workers get better pay rises.
When GDP is falling, it means the economy is shrinking - which can be bad news for businesses and workers.
If GDP falls for two quarters in a row, that is known as a recession, which can lead to pay freezes and job losses.
What is happening to the UK economy?
The UK briefly fell into recession at the end of 2023, when the economy shrank in the last two quarters of the year.
It rebounded in the first half of 2024, when GDP increased 0.7% between January and March, and 0.5% between April and June, external.
However, the economy had zero growth between July and September.
The latest monthly figures show that GDP shrank by 0.1% in October.
Analysts said the unexpected fall was linked to measures announced in that month's Budget, including a rise in employer national insurance contributions (NICs) and a higher minimum wage.
In early December, the influential think tank the Organisation for Economic Co-operation and Development (OECD) cut its growth forecast for the UK for 2024.
It now expects the UK economy to grow by 0.9% across the year as a whole, down from its previous prediction of 1.1%.
That would make it the fourth best performer in the G7 group of rich nations, according to the OECD, external, behind the US, Canada and France, but ahead of Italy, Germany and Japan.
However, economic forecasts are not always accurate.
How does GDP affect me?
If GDP is going up steadily, people pay more in tax because they're earning and spending more.
This means more money for the government, which it can choose to spend on public services, such as schools, police and hospitals.
When the economy shrinks and a country goes into recession, these things can go into reverse.
Governments tend to get less money in tax, which means they may decide to freeze or cut public spending, or put taxes up.
In 2020, the Covid pandemic caused the most severe UK recession for more than 300 years, which forced the government to borrow hundreds of billions of pounds to support the economy.
How is GDP measured?
GDP can be measured in three ways:
Output: The total value of the goods and services produced by all sectors of the economy - agriculture, manufacturing, energy, construction, the service sector and government
Expenditure: The value of goods and services bought by households and by government, investment in machinery and buildings - this also includes the value of exports, minus imports
Income: The value of the income generated, mostly in terms of profits and wages
In the UK, the ONS publishes one single measure of GDP, which is calculated using all three measurements.
But early estimates mainly use the output measure, using data collected from thousands of companies.
Why does the GDP figure often change?
The UK produces one of the quickest estimates of GDP of the major economies, about 40 days after the quarter in question.
At that stage, only about 60% of the data is available, so the figure is revised as more information comes in.
The ONS publishes more information about this on its website, external.
What are the limitations of the GDP figure?
the hidden economy: unpaid work such as caring for children or elderly relatives isn't captured
inequality: it also doesn't show how income is split across a population - rising GDP could result from the richest getting richer, rather than everyone becoming better off, and some people could be worse off
To try and address this, the ONS also publishes a figure for GDP per capita - or head of population - which can tell a different story.
In fact, when you strip out inflation and population growth, the latest quarterly figures show that GDP per capita actually fell by 0.1% between July and September 2024, external.
Official GDP figures don't take into account unpaid work like looking after children
Some critics also argue that GDP doesn't take into account whether the economic growth it measures is sustainable, or the environmental damage it might do.
Alternative measures have been developed which try to capture this.
Since 2010, the ONS has also measured well-being, external alongside economic growth. This assesses health, relationships, education and skills, as well as people's personal finances and the environment.
But despite its limitations, GDP is still the most widely-used measure for most government decisions and international comparisons.