The Top 9 Economic Indicators in the U.K.

Like most countries, the United Kingdom uses gross domestic product, inflation, and employment levels as headline indicators for the state of its economy. However, many more are used by the government and central bank, which help them make monetary and fiscal policy decisions. Additionally, they are used by investors, who make investing decisions based on the data and trends. Here is a brief summary of the most commonly used economic indicators in the U.K.

1. Gross Domestic Product

Every quarter, the Office of National Statistics (ONS) issues three releases—a preliminary first estimate, a revised second estimate, and a third and final number—of the quarterly change in the gross domestic product (GDP).

The reports show GDP change, which is the main indicator of economic growth, as well as the contribution to the growth of the main sectors of the economy: agriculture, construction, production, manufacturing, and services.

2. Productivity

The ONS provides monthly estimates of the Index of Production for the U.K.'s production industries. The Index of Production is one of the earliest indicators of growth, measuring output in manufacturing, mining and quarrying, energy supply, water supply, and waste management industries.

Index values are referenced to 2015, which means that an index value of 115 would indicate the output is 15% higher than the average for 2015. Index estimates are based on a monthly business survey of about 6,000 businesses across the U.K.

3. Inflation

Inflation is the rate of change in purchasing power of a currency. It is monitored by the ONS using the Consumer Prices Index (CPI). The ONS' CPI is similar to that of the U.S.—the prices of 13 categories of selected goods and services are collected and analyzed. These categories are:

• Food and non-alcoholic beverages
• Alcohol and tobacco
• Clothing and footware
• Housing and household services (HHS)
• HHS of which are owner occupier's housing costs
• Furniture and household goods
• Health
• Transport
• communication
• Recreation and culture
• Restaurants and hotels
• Miscellaneous
  

4. Labour Market

Key data on the employment market in the U.K., such as a net change in employment, the unemployment rate, economic inactivity, claimant count, average weekly earnings, labor productivity, and vacancies, are contained in the Labor Market Overview report released monthly by the ONS.

These estimates are derived from the Labor Force Survey (LFS), which is representative of the U.K. population over a three-month period rather than a single month.

The LFS is also used to generate single-month indicators for the labor market. These are considered supplementary data whose use is restricted to an improved understanding of the movements in the headline three-month average rates.

5. Interest Rates

Economists and central banks believe interest rates to be a key component for influencing modern economies. Interest rates are set by the Bank of England, the U.K.'s central bank. Similar to the U.S. Federal Reserve, the bank uses interest rates as a primary method for managing the money supply. The amount of money circulating in an economy is thought to influence demand and spending, affecting prices and inflation.

6. Public Finances

Data on public sector (government) expenditure, receipts, investments, borrowing, and debt are reported in the monthly Public Sector Finances statistical bulletin from the ONS. These figures enable the evaluation of the U.K. government's fiscal position.

7. Trade

The Balance of Payments quarterly report from the Office for National Statistics summarizes trade status between the U.K. and the rest of the world. The report includes detailed information on U.K. trade in goods and services, income, current and capital transfers, and transactions in U.K. external assets and liabilities.

Additional information, such as the current account as a percentage of GDP and the current account with European Union and non-Union countries, is also shown. Balance of payments data has a significant bearing on the value of the national currency. The U.K. has run a combined current and capital account deficit every year since 1983, meaning it is a net borrower from the rest of the world.

8. Retail Sales

The ONS releases a monthly report on retail sales activity across the U.K., showing changes in a given month compared to the previous month and a year ago. The figures contained in the report are based on a monthly survey of 5,000 retailers, including all large retailers employing at least 100 people.

The monthly report also shows the four retail sectors’ contribution to sales growth, as well as their share of each pound spent in the retail industry. The four retail sectors are predominantly food stores (supermarkets, specialist food stores, sales of alcoholic drinks, and tobacco), primarily non-food stores (department stores, textiles, clothing and footwear, and household goods), non-store retailing (mail order, catalogs), and stores selling automotive fuel (petrol stations).

9. Household Final Consumption Expenditures

Household spending is shown in ONS's quarterly Consumer Trends report, in both current prices and volume terms, on an inflation-adjusted basis. Household expenditure measures the contribution of households to economic growth.

Other U.K. Economic Indicators

There are also some well-established and reputable business entities that provide economic indicators used by many in the U.K.

The GfK Consumer Confidence Barometer

Consumer confidence in the U.K. is obtained from the findings of the GfK Consumer Climate Europe survey. The survey is completed by the research firm GfK (Growth from Knowledge).

In addition to an overall Consumer Confidence Index, the survey findings are used to calculate four key indicators: economic expectations, income expectations, propensity to buy, and consumer climate.

If the indicator has a reading above zero, it indicates an optimistic view. A negative value conveys a pessimistic view. The survey is conducted for all members of the European Union as well as the U.K.

Halifax House Price Index

The housing market is another crucial market in developed countries. The ONS has its own housing market index, the U.K. House Price Index, but another index exists that has been used for much longer. The Halifax House Price Index is the U.K.'s longest-running monthly house price series, with data for the entire country from Jan. 1983 to the present. The index is named after a subsidiary of the U.K.'s largest mortgage lender, Lloyds Banking Group plc.

These data are used to calculate a standardized house price, with the annualized change computed as an average for the latest three months (to smooth out short-term fluctuations) compared with the year-earlier period. Changes in house prices are provided on a national basis.

The Bottom Line

The 11 economic indicators described above collectively provide a comprehensive picture of the state of the U.K. economy, shedding light on how it is performing, which helps governments and central banks conduct fiscal and monetary policy. It also helps investors make investment decisions based on what they glean from the data.