ONS Economic Review, January 2015

The Quarterly National Accounts indicated that the pace of economic growth eased slightly from 0.8% in Q2 to 0.7% in Q3, the seventh successive quarter of output growth in the UK. Annual growth of 2.6% is on a par with trend growth rates prior to the downturn. As a result, the UK economy is now estimated to be 2.9% larger than its pre-downturn level. This edition of the Economic Review briefly analyses contributions to growth by expenditure components.

This edition also explores five key features of the recent recovery that could determine the likely future path for the economy. These include the UK’s relatively weak productivity performance and its relationship with wages, the extent of spare capacity for firms and the labour market and the likely strength of the UK’s trade performance. In addition, questions surrounding the relationship between GDP growth and tax receipts are considered, as well as the extent to which the reduction in oil prices could benefit UK businesses.

Finally, this edition builds on previous analysis that looked into the variation in the inflation experience of UK households. The inflation experience of retired and non-retired households are compared, and changes in the price of household energy are shown to have had a varying impact on inflation among these different groups.

Key Points
The Quarterly National Accounts confirmed that the UK economy grew at an unrevised rate of 0.7% in Q3 2014, contributing to annual growth of 2.6%. This is the seventh successive quarter of output growth and the longest sustained run of quarterly growth since the onset of the economic downturn in 2008.

UK labour productivity rose by 0.6% in Q3 2014, the strongest rise seen since Q2 2011 (when productivity rose by 1.3%). This coincides with an increase in real wage growth.

A broad range of indicators which can be used to judge the degree of slack, both within firms and within the labour market, are showing signs of a reduction in spare capacity compared to a year earlier.

Latest figures show the current account deficit widening to 6.0% of nominal GDP, representing the joint largest deficit since ONS records began in 1955.

This edition of the Economic Review finds that above inflation changes in the level of personal allowances and changes in the distribution of real wages are both likely to have contributed to income tax receipts growing less strongly compared to nominal GDP.

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