What is GDP and how fast is the UK economy growing?

What’s happening to the UK economy and how does it affect you?

5 hours ago

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The UK economy shrank slightly in April, official figures show

The contraction comes after a better-than-expected start to the year for the economy, but experts expect the global impact of the US-Israeli war with Iran will mean growth could remain sluggish for some months

Economic growth matters because it affects things like pay increases for workers and the amount of tax the government raises to pay for services

What is GDP and why does it matter?

UK economic growth is measured by the change in the country’s GDP, or gross domestic product. This includes all the economic activity of companies, governments and people in a country

In the UK, the Office for National Statistics (ONS) publishes new GDP figures every month. However, these can vary quite a lot and the quarterly figures – covering three months at a time – are considered more significant

Most economists, politicians, and businesses like to see GDP rising steadily

That’s because it usually means people are spending more, extra jobs are created, more tax is paid, and workers get better pay rises

When GDP is falling, it means the economy is shrinking

This can be bad news for businesses and workers as it can lead to pay freezes and job losses

If GDP falls for two quarters in a row, that is known as a recession

What is happening to the UK economy?

The UK economy shrank by 0.1% in April, according the latest figures from the ONS, as businesses started to feel the impact of the Iran war

A small contraction had been expected after the economy grew by a stronger-than-expected 0.3% in March, when there was some evidence that consumers and businesses had brought forward spending before the impact of the conflict in the Middle East was felt

GDP grew by 0.6% during the first three months of the year, but analysts think the dip in April is a sign of things to come, with growth expected to be sluggish in the months ahead

The Bank of England has already warned that it expects UK inflation to increase as a result of the war, possibly reaching 6% in the worst-case scenario

In April, the International Monetary Fund (IMF) said it expected the war to hit the UK the hardest of the world’s advanced economies

However, in May the IMF forecast the UK’s economy would grow by 1% this year, up from its previous estimate of 0.8%

The Labour government has repeatedly said growth is its top priority, but has faced criticism for achieving only moderate GDP growth since it took power in 2024

Across 2025 as a whole, UK GDP was estimated to have increased by 1.3%, up from 1.0% in 2024

How does GDP affect tax and public services?

If GDP is going up steadily, people pay more in tax because they’re earning and spending more

This means more money for the government, which it can choose to spend on public services, such as schools, police and hospitals

When the economy shrinks and a country goes into recession, these things can go into reverse

Governments tend to get less money in tax, which means they may decide to freeze or cut public spending, or put taxes up

In 2020, the Covid pandemic caused the most severe UK recession for more than 300 years, which forced the government to borrow hundreds of billions of pounds to support the economy

How is GDP measured?

GDP can be measured in three ways:

Output: The total value of goods and services produced by all sectors of the economy – agriculture, manufacturing, energy, construction, the service sector and government

Expenditure: The value of goods and services bought by households and by government, investment in machinery and buildings. This also includes the value of exports, minus imports

Income: The value of the income generated, mostly in terms of profits and wages

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In the UK, the ONS publishes one single measure of GDP, which is calculated using all three measurements

But early estimates mainly use the output measure, using data collected from thousands of companies

Why does the GDP figure sometimes change?

The UK produces one of the quickest estimates of GDP of the major economies, about 40 days after the quarter in question

At that stage, only about 60% of the data is available, so the figure is revised as more information comes in

The ONS publishes more information about this on its website

What are the limitations of the GDP figure?

GDP is not the whole story as it does not include things like:

The hidden economy: Unpaid work such as caring for children or elderly relatives isn’t captured

Inequality: Rising GDP could result from the richest getting richer, rather than everyone becoming better off, and some people could be worse off

Living standards: If the population is also growing, increased GDP can still mean less money per person, which can reduce people’s living standards. This is why the GDP per capita measure is important

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Some critics also argue that GDP doesn’t take into account whether the economic growth it measures is sustainable, or the environmental damage it might do

Alternative measures have been developed which try to capture this

Since 2010, the ONS has also measured well-being alongside economic growth. This assesses health, relationships, education and skills, as well as people’s personal finances and the environment

But despite its limitations, GDP is still the most widely used measure for most government decisions and international comparisons

GDP
Economic growth
Economics
Rachel Reeves
Budget 2025
UK economy