Wed. Oct 17th, 2018

Economic growth in the UK 1998 to 2017

26 July 2018/Economic growth in the UK
This section discusses the trends of economic growth, measured by gross domestic product (GDP) and gross national disposable income (GNDI) per head, in three different time periods: before the downturn (Quarter 1 (Jan to Mar) 1998 to Quarter 1 2008), during the downturn (Quarter 2 (Apr to June) 2008 to Quarter 2 2009) and during the economic recovery (Quarter 3 (July to Sept) 2009 to Quarter 4 (Oct to Dec) 2017). The aim of this section is to describe what drove economic growth in the UK during the different phases.

Real GDP per head
We focus on real GDP per head because the value of goods and services produced within the UK economy is divided by the number of people to help to remove the effects of a growing population. Additionally, it removes the effect of rising prices and is a typical measure of economic growth.
Figure 1: Contributions to annual growth in gross domestic product per head since Quarter 1 1998, by income component

UK, Quarter 1 (Jan to Mar) 1998 to Quarter 4 (Oct to Dec) 2017

Source: Office for National Statistics
Notes:
Average growth rates for the time periods, growth rates are calculated as quarters compared with the same quarter a year ago.

GDP per head is in constant prices. Components are in current prices, with the impact on prices identified separately.

Other income refers to mixed income, as well as gross operating surplus of government and non-profit institutions serving households (NPISH).

Q1 refers January to March, Q2 refers April to June, Q3 refers July to September, Q4 refers to October to December.

Components may not sum due to rounding.
Figure 1 examines the role of different contributions to GDP per head growth for the UK, between Quarter 1 1998 and Quarter 4 2017. It shows that growth in compensation of employees per head provided a strong contribution to GDP growth per head before the economic downturn. Compensation of employees includes the wages and salaries payable in cash or in kind to an employee in return for work done and the social insurance contributions payable by employers.

During the years of economic downturn, GDP per head in the UK decreased by an average of 3.9% per quarter compared with the quarter a year ago. The decrease was supported by a decrease in most of the components of GDP, particularly the negative growth of compensation of employees and negative operating surplus growth. Furthermore, the changes in prices offset GDP growth by an average of 2.6 percentage points per quarter, 1.6 percentage points higher on average than before the downturn.

After Quarter 3 2009, the UK’s recovering economy supported a return to positive contributions from compensation of employees. However, GDP per head growth during the recovery period was an average of 1.5 percentage points lower than the period before the economic downturn.

Gross national disposable income
Gross national disposable income (GNDI) measures the income available to the nation for final consumption and gross saving. It equals gross national income (at market prices) minus all current transfers (current taxes, social contributions, social benefits other than social transfers in kind and other current transfers) payable to non-resident units, plus all transfers receivable by UK resident units from the rest of the world. In other words, national disposable income is derived from national income by adding all current transfers receivable by UK residents, government and corporations from abroad and subtracting all current transfers payable overseas by the UK.

Figure 2 examines the contributions to growth of GNDI per head by sector between Quarter 1 1998 and Quarter 4 2017. When looking at gross disposable income by sector, all current transfers listed previously are also accounted for between sectors, such as taxes paid out by sectors captured as an income to the government, while benefits paid out by government will increase household disposable income. Office for National Statistics (ONS) reports these estimates quarterly, on a current price basis.

Figure 2: Contributions to annual growth in gross national disposable income per head since Quarter 1 1998, by sector
UK, Quarter 1 (Jan to Mar) 1998 to Quarter 4 (Oct to Dec) 2017

Source: Office for National Statistics
Notes:
Average growth rates for the time periods, growth rates are calculated on quarters compared with the same quarter a year ago basis.

GNDI and components are in current prices.

Q1 refers Jan to Mar, Q2 refers Apr to June, Q3 refers July to Sept, Q4 refers to Oct to Dec

Components may not sum due to rounding.

NPISH means Non-profit institutions serving households.
Figure 2 shows that growth in disposable income of households per head provided a strong contribution to GNDI per head growth before the economic downturn.

Between Quarter 2 2008 and Quarter 2 2009, GNDI per head in the UK decreased by an average of 2.4% per quarter compared with the same quarter a year ago. The disposable income from corporations and government contributed to the decrease of GNDI by an average of 1.8 and 2.2 percentage points per quarter compared with the same quarter a year ago respectively. However, GNDI growth was supported from the positive contribution of household disposable income, which contributed by a positive average of 1.5 percentage points per quarter compared with the same quarter a year ago.

After Quarter 3 2009, the UK’s recovering economy supported a return to positive contributions from general government. However, the GNDI per head growth during the recovery period was on average 1.9 percentage points per quarter compared with the same quarter a year ago lower than the period before the economic downturn and household disposable income growth was on average 0.9 percentage points per quarter compared with the same quarter a year ago lower than the period before the economic downturn.

In conclusion, economic growth in the UK measured through GDP per head and GNDI per head has recovered to its pre-economic downturn levels. However, in both measures the average growth rates are lower than the years before the economic downturn and this is mainly because of lower growth from compensation of employees and household income respectively. This shows that from a macroeconomic picture, the returns to growth across components and sectors of the UK have varied before and after the downturn most starkly for households.

Sources:
Office for National Statistics

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