How fast is the UK's economy growing and what is GDP?
- Published
The UK economy unexpectedly grew by 0.1% between October and December 2024, according to the latest official figures.
Analysists had expected it to have shrunk over the period.
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 grew strongly in the first half of 2024, when the economy was rebounding from the brief recession at the end of 2023.
GDP increased by 0.7% between January and March, and 0.5% between April and June.
However, growth has slowed since then.
The economy had zero growth between July and September, before picking up slightly in the final three months of 2024.
The limited growth recorded was driven by a range of industries which performed strongly in December, including pubs and bars and machinery manufacturers.
A slightly different measurement called GDP per capita - which divides the total amount of GDP by the number of people in the UK - actually fell over the period, by 0.1%.
That's because while the economy expanded during the three months, the UK population also grew, meaning the share of the country's wealth per person was smaller.
The government has made economic growth a key political priority.
Chancellor Rachel Reeves said she was not satisfied by the latest GDP figures, but that the government was "doing what is necessary to bring stability to the economy".
However, the Bank of England has halved its growth forecast for the year ahead. In February it said it expects the economy to grow by 0.75% during 2025, down from its previous estimate of 1.5%.
It is concerned about the impact of higher inflation in the UK as a result of higher wage and national insurance costs for employers, and increased energy and water bills for consumers. US trade tariffs could also put prices up.
On 26 March, the Office for Budget Responsibility (OBR) - which monitors the government's spending plans and performance - is also expected to downgrade its forecasts for the health of the UK economy over the coming years.
Economic forecasts are not always accurate but predictions from the Bank of England and the OBR are looked at closely.
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 sometimes 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: rising GDP could result from the richest getting richer, rather than everyone becoming better off, and some people could be worse off
living standards: if the population is also growing, increased GDP can still mean less money per person, which can reduce people's living standards. This is why the GDP per capita measure is important
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.