Oct 26, 2017

Interest rate likely to increase as UK economy grows by 0.4%

The Office for National Statistics (ONS) have released the preliminary estimate for the gross domestic product (GDP) in the third quarter of 2017 (July to September). The GDP is estimated to have increased by 0.4%, which is a similar rate of growth to the previous two quarters. GDP per head is estimated to have increased by 0.3%. This is said to have an impact on interest rates.

 

GDP increase UK economy growth

 

Main takeaways:

Services

Services increased by 0.4%. This is the same rate as the second quarter of 2017 (April to June). This sector remains the largest contributor to GDP growth. Its strongest performance is in computer programming, motor trades and retail trade.

Manufacturing

Following a weak second quarter, manufacturing has increased by 1.0% in the third quarter.

Construction

For a second quarter in a row, construction has contracted. The industry, however, remains well above its pre-downturn peak, according to the ONS.

What is GDP and how is economic growth measured?

Gross domestic product (GDP) is the total value of goods produced and services provided in a country during one year.

Put simply, it measures a country’s overall economic activity. If GDP is positive compared to the previous three months, it means the economy is growing. If it is negative, it means the economy is contracting. Two consecutive three-month periods of contraction mean that an economy is in recession.

GDP can be measured in three ways:

  • Output measure: the value of all goods and services produced by all sectors of the economy.
  • Expenditure measure: the value of goods and services purchased by households and by government.
  • Income measure: the value of the income generated in terms of profits and wages.

In the case of the figures published by ONS, they are based solely on the output approach. The ONS further explain their methodology by clarifying that “the output approach measures gross value added (GVA) at a detailed industry level before aggregating to produce an estimate for the whole economy”. GDP is then calculated by adding taxes and subtracting subsidies to the estimate of total GVA. At this stage, however, there is no information available on taxes and subsidies; therefore, the quarterly growth for output GVA is taken as a proxy for GDP growth.

To learn more about the new GDP figures and methodology, visit the ONS website.

 

GDP increase UK economy growth computer programming

 

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