Gross domestic product (GDP) measures the total value of activity in the economy over a given period of time.
Put simply, if GDP is up on the previous three months, the economy is growing; if it is down, it is contracting. Two or more consecutive quarters of contraction are considered to be a recession.
GDP is the sum of all goods and services produced in the economy, including the service sector, manufacturing, construction, energy, agriculture and government. Several key activities are not counted, such as unpaid work in the home.
The ONS uses three measures that should, in theory, add up to the same number.
• The value of all goods and services produced – known as the output or production measure.
• The value of the income generated from company profits and wages – known as the income measure.
• The value of goods and services purchased by households, government, business (in terms of investment in machinery and buildings) and from overseas – known as the expenditure measure.
Economists are concerned with the real rate of change of GDP, which accounts for how the economy is performing after inflation.
Britain’s government statistics body, the Office for National Statistics, produces GDP figures on a monthly basis about six weeks after the end of the month. It compares the change in GDP month on month, as well as over a three-month period.
The ONS warns that changes on the month can prove volatile, preferring to assess economic performance over a three-month period as the wider period can smooth over irregularities.
The most closely watched GDP figures are for the four quarters of the year; for the three months to March, June, September and December.
The figures are usually revised in subsequent months as more data from businesses and the government becomes available.
The ONS also calculates the size of the UK economy relative to the number of people living here. GDP per capita shows whether we are actually getting richer or poorer, by stripping out the impact of population changes. Richard Partington