The UK economy at a glance

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The UK economy at a glance

The FT’s one-stop overview of key economic data, including GDP, inflation, unemployment, the major business surveys, the public finances and house prices

GDP growth

The UK has recovered since the financial crisis but growth remains sluggish and has depended on getting more people into work rather than rising productivity.

Q2 2018 GDP growth (QoQ)
0.4%
Increase in size of the economy compared to pre-downturn peak
9.7%
Annual % change
2.3%

Growth rates

Britain’s economy struggled at the start of 2018, partly due to snow. It has picked up speed as the weather improved but growth remains below previous averages.

Read more
The UK economy since the Brexit vote — in 5 charts

Size of the economy

After the financial crisis the UK experienced the slowest recovery in levels of output since the 1920s, with the UK finally reaching the size it had been before the recession in the second quarter of 2013.

Growth per head

Growth in national income per head has been slower than overall growth. It was not until the second quarter of 2015, that GDP per head returned to roughly its pre-recession level and is now slightly under 3 per cent higher than the pre-crisis peak.

Where is the UK going?

Economic growth started 2018 on a weak footing following a slowdown in 2017. Growth is expected to recover slightly during the second quarter but remain lacklustre throughout the year.

About the nowcast
now-casting.com uses statistical modelling to determine what individual economic data points tell us about the rate of growth . The nowcast chart (right) shows the model’s evolving prediction of GDP growth in the current quarter

Current Q3 nowcast
0.54%
OBR 2017 GDP forecast
2%
OBR 2018 GDP forecast
1.6%

Prediction for Q3

Economists' forecasts

Growth in 2016 was stronger than the OBR and other forecasters were expecting at the start of the year, with little sign of any immediate post-Brexit slowdown. But the OBR predicts growth will slow in 2017 and 2018 as businesses delay investment plans and household incomes start to be squeezed by rising inflation.

The vast majority of economists expect the decision to leave the EU to hit growth in the medium to longer term.

Markets

Movements in the bond and currency markets are a barometer of investor expectations about a country’s economic prospects.

Selling bonds through the Debt Management Office is the main way the UK government borrows money to fund the gap between what it spends and the money it receives.

A rise in the premium, or yield, demanded by markets for loaning money means funding the deficit becomes more expensive.

Gilts

The UK is currently able to borrow money for close to record low costs. Gilt yields remained low despite the Bank of England’s decision to raise interest rates in November 2017 and August 2018, reflecting market scepticism about future economic growth.

Read more
Westminster turmoil leaves markets little moved
Low gilt yields show there is room for higher UK public spending

Dollar rate

Since the vote to leave the EU, sterling has fallen markedly, at times touching 30 year lows against the dollar. While exporters have long complained of being hindered by a strong pound, it does not necessarily follow they will get an immediate boost from a weaker currency, considering the highly uncertain trading environment.

Read more
Where will the pound head next?

Euro rate

Sterling is also down sharply against the euro. Stronger growth in the eurozone has boosted the single currency.

Read more
Sterling slips after inflation data miss views

Labour market

The UK’s historic low unemployment rate has been one of the major economic success stories of the past year. Initially led by part-timers and the self-employed, the growth in employment has broadened to include full time employees. But real wages, which had started to recover following the financial crisis, began falling again this year as the depreciation of sterling after the Brexit vote has fed through to consumer prices but nominal wage growth has not picked up.

Unemployment rate
4%
Regular weekly earnings growth in three months to July
2.9%
Employment rate
75.5%

Numbers in work

The number and propotion of people in work remains close to record levels despite some predictions that unemployment would rise following the Brexit vote. Recent employment growth has come from full time workers and employees rather than the part time and the self-employed.

Read more
Tight labour markets are healing the scars of the financial crisis

Proportion out of work

The unemployment rate has tumbled over the past four years from eight per cent in January 2013 to a 40-year low of 4.1 per cent. But the pace of decline has slowed recently.

Pay

Wages have finally started rising faster than prices as the effect of the cheaper pound has started to disappear from the inflation figures. Growth in pay still remains very low by historical norms.

Read more
UK wage growth weakest in G7 since financial crisis

Productivity

A measure of how much economic output is generated for a unit of input, productivity has been the Achilles heel of the UK recovery. For many decades before the financial crisis of 2008-09, it tended to grow at a stable pace of around 2 per cent per year, whether measured by output per worker, output per hour worked or the efficiency of both labour and capital used.

But since the crisis, productivity has failed to pick up, confounding forecasters at the Bank of England and the Office for Budget Responsibility. A brief pick-up in productivity growth in 2016 appears to have been a false dawn.

Across the economy

Since 2007, there has been a huge shift from growth in output underpinned by improved efficiency of the workforce towards all additional growth coming from more workers employed for longer hours.

Per worker

Despite a number of false dawns, there is no sign of the recovery in productivity growth that is needed for sustainable rises in living standards.

Read more
The UK’s productivity problem: the curse of the ‘accidental manager’

International comparison

Most other advanced economies have experienced a slowdown in productivity growth since the financial crisis. But this has been more pronounced in the UK than elsewhere. Policymakers are now trying to find solutions to the slowdown, whether through industrial strategy or expanding the remit of the Bank of England.

Read more
UK’s dismal productivity record divides official agencies

Inflation

Exceptionally low inflation, driven largely by falling oil prices, supermarket price wars and the strength of sterling keeping down the costs of imports, was a boon for household finances in 2014 and 2015. But the sharp fall in the value of sterling since the vote to leave the EU means that imports have become more expensive and inflation has risen well above the Bank of England’s 2 per cent target.

August consumer price inflation
2.7%
August RPI
3.5%

Consumer price index

Rising import prices have driven inflation to its highest level for five years, though the Bank of England predicts that the annual rate will have peaked in October 2017. Inflation has now fallen as the effect of the drop in the pounds passes out of the figures but the central bank expects that a tight labour market may soon lead to domestic inflationary pressure.

Read more
Inflation misses estimates to hold steady at 2.4%

Input prices

A lower pound led to cost increases for manufacturers as well, who must buy their raw materials in international markets. Now rising oil prices are a new cost pressure for British companies.
Read more
Crude rises on reports of US push for buyers to cut Iran imports

Shop prices

Big retailers had hedges to allow them to resist passing on the effect of a lower currency to their customers and keep their market share, but they have not been able to fully resist the effects of higher import costs

Interest rates

The Bank of England increased interest rates above the 0.5 per cent ‘emergency levels’ they were cut to in 2009 for the first time in August 2018. Markets are now speculating whether the central bank made the right decision to move before the outcome of the Brexit negotiations is known.

Base rate
0.75%

Central bank rate

The BoE cut interest rates in the aftermath of the vote to leave the EU but that cut was reversed this November as the economy has been stronger than the central bank initially expected. The monetary policy committee then unanimously voted to raise interest rates in August 2018 on concerns that domestic inflation pressures may soon increase.
Read more
Bank of England raises interest rates to highest level since 2009

Mortgage costs

Households in a position to buy property are seeing the benefits of low rates: those who can afford to pay a big deposit are currently able to borrow exceptionally cheaply.

Consumers

Consumer spending has been one of the driving forces of the UK recovery. But concerns remain about the basis of this spending: if people are using up their savings or taking out loans this could cause future problems.

July retail sales, annual % change
3.5%
Mortgage approvals in July
64.77k

Sales volumes

Retail sales slowed in 2017 as rising import prices squeezed consumer spending power. The picture in 2018 so far is more mixed as spending dropped in the first quarter before rebounding in the second.

Read more
Decline in UK retail sales sends pound below $1.30

Consumer confidence

In the aftermath of the vote to leave the EU, consumer confidence dropped sharply but quickly recovered to pre-vote levels. It has recently been drifting down again as progress in the Brexit talks has been limited.

Read more
UK consumer confidence remains sub-zero despite heatwave

Mortgage approvals

Mortgage approvals remain well below pre-crisis levels.

Read more
How will Brexit affect UK house prices and mortgages?
UK Housing Market: in depth

Services

The services sector is the real powerhouse of the UK economy, accounting for almost 80 per cent of GDP. It is one of the few parts of the economy to have surpassed its pre-recession peak.

Service output in July, annual % change
1.5%
Month-on-month change in Jul
0.3%
Quarter-on-quarter change
0.4%

Trend

Services suffered in the downturn like the rest of the economy but on official measures the sector had regained its previous peak by the end of 2011, well ahead of the rest of the economy. It continues to expand at a healthy rate.

Read more
ONS index of services

Markit/CIPS PMI

The closely watched survey of purchasing managers fell sharply in the aftermath of the vote to leave the EU but has since recovered.

Read more
UK services sector loses momentum in July

Industry

Manufacturing has a symbolic place in British economics, despite the fact that its importance has declined consistently over the decades. In 1948, it contributed about 36 per cent of GDP, compared with about 10 per cent today. The number of people employed in the sector has declined even faster than its share of output but new technology has made the sector more productive as it focuses on higher value goods.

Industrial production output in July, annual % change
0.9%
Month-on-month change in Jul
0.1%
Quarter-on-quarter change
1%

Industrial production

Industrial production in the UK is still struggling to recover from the recession, remaining around 7 per cent below its pre-recession size.

Read more
ONS index of production

Manufacturing

Survey responses suggest UK manufacturers have benefitted from the depreciation of sterling and a pick-up in global growth. However, many UK manufacturers use imported products in their production processes, meaning net exports have not strengthened as much.

Read more
Manufacturing growth beats forecasts by double in September

Markit/CIPS PMI

A strong performance by the manufacturing sector during 2017 has weakened this year as the competitive boost from the fall in sterling has faded and global trade tensions have risen.

Read more
UK factory activity at lowest level in 3 months, PMI survey shows

Construction

Construction accounts for about 6 per cent of the economy, but was very hard hit by the recession. It contracted by 17 per cent from peak to trough and remains below its pre-downturn peak. After a period of growth, mainly driven by housebuilding, the sector has begun falling again, but the data remains very volatile.

Construction output in July, annual % change
3.5%
Month-on-month change in Jul
0.5%
Quarter-on-quarter change
-0.7%

Output

Construction output has has bounced back in the second quarter of 2018. The sector struggled last year but a period of warm weather and rising housebuilding have helped it to recover.

Read more
ONS construction output

Markit PMI

Having fallen sharply after the Brexit vote, activity rebounded sharply before slowing again as contracts were finished and not replaced by new work.

Read more
Housebuilding boosts UK construction in July

Materials

Another way to ascertain the health of the industry is to look at brick deliveries.

Business

Banks’ lending to businesses started to grow in 2016, having declined since 2011 (when the Bank of England started collecting data). Since the financial crisis the government has introduced many schemes and used much political pressure to encourage banks to improve access to finance for businesses.

Q2 2018 business investment growth
0.5%
Annual growth rate in lending to SMEs
0.6%
Annual growth rate in lending to all businesses
2.6%

Non-financial businesses

Loans to businesses started to grow in 2016 as many businesses paid off post-crisis debts.

Small and medium enterprises

Lack of access to credit is particularly acute for small and medium businesses. Despite assurances from the banks that credit is available, many believe that the default answer will be no.

Read more
UK bank scandals are making entrepreneurs reluctant borrowers
UK financial watchdog to propose mediation service for small businesses

Investment

Business investment data has been closely watched since the Brexit vote for any indication that business leaders are jittery about the UK’s economic prospects outside the EU. Investment growth has been sluggish since the vote but not as weak as some had feared.

Read more
Record foreign investment in UK skewed by two big company mergers

Housing market

The UK has a history of credit-led booms, followed by house price crashes: in fact the last time this happened the UK had to nationalise two banks. This means regulators now pay close attention to signs prices may be rising out of control. Since last summer, most markets have cooled but prices are still much higher than a few years ago.

Annual change in average house prices in March
9%
Rise excluding London & southeast England
5.9%
Month-on-month change
2.9%

ONS data

From the summer of 2016, the UK got a new single official house price index. Initial estimates of historic data under the new index suggest that house prices have risen faster than previously thought. Average house prices though have shifted lower as the way the average is calculated has changed to strip out the weight of a small number of high-end properties.

The Royal Institution of Chartered Surveyors

The Royal Institution of Chartered Surveyors’ monthly survey asks its members about expectations for future prices and how many new buyers and sellers are coming to the market. It is a closely-watched forward looking indicator of strength in the housing market.

Read more
Gloom among UK estate agents is growing, Rics survey shows

Public finances

Public spending cuts have been a central theme since 2010 but the government is still struggling to close the UK’s budget deficit. It has been hampered by continuing weakness in economic growth and tax receipts.

Public sector net borrowing

The UK experienced a sharp rise in public borrowing during the financial crisis. Among the G7 large, advanced economies, only the US borrowed more as a share of national income at the height of the crisis than the UK did. But significant cuts to public spending and some tax increases since then have helped reduced public borrowing. In 2017, the UK is predicted by the International Monetary Fund to borrow less than the US, Japan and France, but more than Canada, Italy and Germany.

Read more
UK government borrowing restrained by low spending levels

Debt

The accumulated debt burden is still above 80 per cent of GDP – the highest peacetime level this century.

Revenues

Recently tax receipts have grown more strongly since than the Office for Budget Responsibility had expected. However, the fear is that they will grow only slugglishly in future if productivity growth fails to pick-up.

Trade

Despite numerous initiatives by successive governments, the UK has been importing more than it exports for a long time. While financial markets have to date been relaxed about the current account deficit, some economists are beginning to worry, saying it could make the UK vulnerable to external shocks.

Trade balance

The UK exports more services than it imports but the reverse is true for goods, which drags down the UK’s net trade position with the rest of the world.

UK balance of payments

The current account deficit deteriorated sharply in 2016, largely because of a fall in receipts from investments overseas and rises in payments from the UK to foreign investors. A recovery in the UK’s earnings on overseas investments and favourable exchange rate movements have helped to close the current account deficit since the Brexit vote.

Read more
Don’t be a stranger: offshore finance and the UK’s balance of payments

EU balance of payments

The UK’s balance of payments deficit with the EU widened significantly after 2010. But it has started to narrow as growth in the eurozone has picked up and sterling has devalued against the Euro.