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Statistical bulletin: Economic Well-being, Quarter 3 July to Sept 2015

Released: 23 December 2015 Download PDF

Main points

  • In Quarter 3 (July to September) 2015, gross domestic product (GDP) per head increased 0.3% compared with Quarter 2 (April to June) 2015 and is now 0.3% above pre-economic downturn levels. This was a slightly slower growth rate than the 0.4% quarterly increase seen in GDP.
  • In Quarter 3 2015, net national disposable income (NNDI) per head, which represents the income available to UK residents, increased 1.3% compared with Quarter 2 2015, but remains 0.1% below pre-economic downturn levels.
  • In Quarter 3 2015, real household disposable income (RHDI) per head (excluding non-profit institutions serving households) increased 0.3% compared with Quarter 2 2015 and increased 3.3% compared with the same quarter a year ago (Quarter 3 2014). Overall, it remains broadly in line with the level of household income seen in mid-2012.
  • In the financial year ending 2015 (April 2014 to March 2015), median income (the income of the middle household if all households are ranked from the lowest income to the highest) was £25,600 – 3.0% higher than in the financial year ending 2014 (April 2013 to March 2014). This continues the rise in median income seen since financial year ending 2013 to reach a similar amount to pre-economic downturn levels.
  • In Quarter 3 2015, household spending per head grew 0.6% compared with the previous quarter – continuing the general upward trend seen since Quarter 3 (July to September) 2011.
  • In the period July 2012 to June 2014, the wealth held by the top 10% of households accounted for 45% of total aggregate household wealth and was around 5 times greater than the wealth of the bottom half of all households combined.
  • In 2014, the net worth of the economy as a whole increased 5.0% to £8.1 trillion. In the same year, household net worth increased 12.2% (by £1.0 trillion) to £9.4 trillion, the largest year-on-year percentage change since 1998.

Introduction

This release considers the measurement of economic or material well-being, presenting a number of indicators alongside commentary that, together, give a more rounded and comprehensive basis for assessing changes in economic well-being. More detail can be found in the Economic Well-being, Framework and Indicators article. Economic well-being is a subset of the measurement of national well-being and recognises that many dimensions of well-being are outside the material sphere (for example, our “Wheel of Well-being”).

Whole economy production and income

Figure 1: GDP per head and net national disposable income per head, Q1 2008 to Q3 2015

UK

Figure 1: GDP per head and net national disposable income per head, Q1 2008 to Q3 2015
Source: Office for National Statistics

Notes:

  1. Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

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Real GDP per head

In Q3 2015, gross domestic product (GDP) per head, which adjusts GDP for the size of the population, increased 0.3% compared with Q2 2015. This was a slightly slower growth rate than the 0.4% quarterly increase seen in GDP, which recovered to its pre-economic downturn level in Q2 2013. The quarterly growth in GDP per head means that it is now 0.3% above its pre-economic downturn level, having initially surpassed its pre-economic downturn level in Q2 2015.

Between 2013 and 2014, GDP per head increased 2.1%. This was slower than the 2.9% increase in GDP over the same period.

Real net national disposable income (NNDI) per head

In Q3 2015, NNDI per head increased 1.3% compared with Q2 2015. This was a faster growth rate than the 0.3% quarterly increase seen in GDP per head.

Between 2013 and 2014, NNDI per head increased 1.4%. This was slower than the 2.1% increase in GDP per head over the same period.

As discussed in the Economic Well-being, Framework and Indicators article, there are 2 main differences between GDP per head and NNDI per head:

First, not all income generated by production in the UK will be payable to UK residents. Some of the capital employed will be owned by non-residents and they will be entitled to the return on that investment. Conversely, UK residents receive income from production activities taking place elsewhere, based on their investments overseas. Adjusting for these flows gives a measure that is more focused on income rather than production.

Second, these measures can be adjusted for capital consumption. GDP is “gross” in the sense that it does not adjust for capital depreciation, that is, the day-to-day wear and tear on vehicles, machinery, buildings and other fixed capital used in the productive process. It treats such consumption of capital as no different from any other form of consumption. But most people would not regard depreciation as adding to their material well-being.

GDP per head and net domestic product (NDP) per head, which just makes the adjustment for capital depreciation, track reasonably well over the course of the recession, suggesting that the impact of capital consumption is relatively low.

However, NNDI has behaved somewhat differently to GDP, particularly since late 2011. NNDI, which represents the income generated by production that is payable to UK residents, was broadly flat between Q1 2012 and Q4 2014. Since Q4 2014, NNDI per head has grown sharply, increasing 4.7% between Q4 2014 and Q3 2015 and is now 0.1% below its pre-economic downturn level. This compares with GDP per head which was 0.3% above its pre-economic downturn level in the same quarter.

The difference between the experience of GDP per head and NNDI per head since late 2011 can be explained by looking at the balance of primary incomes, which captures flows of income into and out of the UK economy.

One main part of primary incomes is direct investment; that is, earnings from investments in which an investor owns 10% or more of the ordinary shares or voting power in an incorporated enterprise, or an equivalent ownership in an unincorporated enterprise.

Since late 2011, there has been a fall in the balance of earnings on foreign direct investment (FDI) (the difference between earnings from direct investment abroad and from foreign direct investment in the UK). The continued fall to the balance of earnings on direct investment since late 2011 actually resulted in a direct investment deficit for Q3 and Q4 2014, the first such deficit since Q4 2008. This deterioration is attributed to both subdued earnings for UK residents’ from direct investment abroad and an increase in foreign earnings on direct investment in the UK. The balance of earnings on foreign direct investment has since rebounded slightly, returning to a surplus in Q1 2015 and has continued to improve throughout 2015. In Q3 2015, the balance of earnings on direct investment improved to £2.9 billion (from £1.8 billion in Q2 2015), reflecting a larger decrease in earnings on direct investment in the UK relative to the decrease in the amount the UK earns from its direct investment abroad.

Perception of the economic situation

The Eurobarometer Consumer survey asks respondents how they think the general economic situation has changed over the last 12 months. In September 2015, the aggregate balance stood at negative 4.5. The small negative balance suggests that on average, respondents think the economic situation has got slightly worse compared with a year ago, although in general it is broadly similar. This is a slight fall on the 2.3 aggregate balance recorded at the end of the second quarter of 2015, but the series has been on a general upwards trend in recent years. At its lowest, in May 2009, the Eurobarometer reported an aggregate balance of negative 82.3.

Household income

Figure 2: Real household disposable income per head and perception of financial situation, Q1 2008 to Q3 2015

UK

Figure 2: Real household disposable income per head and perception of financial situation, Q1 2008 to Q3 2015
Source: Office for National Statistics

Notes:

  1. Household's perception of their own financial situation over the last 12 months - last month of each quarter used.
  2. Households exclude non-profit institutions serving households (NPISH).
  3. Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).
  4. The Eurobarometer Consumer Survey is collected by GfK for the European Commission.

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In Q3 2015, real household disposable income (RHDI) per head (excluding non-profit institutions serving households) increased 3.3% compared with the same quarter a year ago (Q3 2014). In Q3 2015, RHDI per head (excluding NPISH) increased 0.3% compared with Q2 2015. For 2014 as a whole, RHDI per head (excluding NPISH) was down 0.1% compared with 2013.

Overall, in Q3 2015, RHDI per head (excluding NPISH) was 3.3% above its pre-economic downturn level.

In previous releases, we considered RHDI per head of the household and non-profit institutions serving households (NPISH) sector. In March 2015, we published initial estimates of the real disposable income of households only. We consider this a better indicator of the economic well-being of households. Real household and NPISH disposable income per head will continue to be published alongside RHDI per head (excluding NPISH) in this release.

Real household and NPISH disposable income per head increased 3.2% in Q3 2015 compared with the same quarter a year ago (Q3 2014). For 2014 as a whole, real household and NPISH disposable income per head decreased 0.1%.

As GDP began to fall in mid-2008, RHDI (excluding NPISH) per head remained relatively resilient. By Q2 2009, RHDI (excluding NPISH) per head was 3.8% above its pre-economic downturn level. This initial improvement in real household income per head was a result of several factors.

Firstly, interest rates reached historic lows and therefore household incomes were helped by falling mortgage payments.

Additionally, as employment fell and unemployment rose, people paid less income tax and claimed more benefits, supporting RHDI per head (excluding NPISH). However, moving into early 2011, the impact of these factors wore off and inflation rose. Prices grew more strongly than household income and therefore, over time, people found that their income purchased a lower quantity of goods and services.

Following this, RHDI per head (excluding NPISH) began to rise in early 2012 before stabilising toward the end of 2012 and falling over a few quarters in 2013 to reach its pre-economic downturn level in Q4 2013. Over the last few quarters, however, RHDI per head (excluding NPISH) has shown positive growth. In Q3 2015, RHDI per head (excluding NPISH) increased 3.3% compared with the same quarter a year ago and was 3.3% above its pre-economic downturn levels.

For international comparisons it is important to consider benefits in kind. The real household and non-profit institutions serving households (NPISH) adjusted disposable income per head series, which makes the adjustment for benefits in kind, can be found in the reference table.

Perception of financial situation

As well as considering levels of household income, it is important to consider individuals' perceptions of their own income. The Eurobarometer Consumer survey1 asks respondents their views on the financial situation of their household over the past 12 months. A negative balance means that, on average, respondents reported their financial situation got worse, a positive balance means they reported it improved and a zero balance indicates no change.

Between the end of Q2 2015 and the end of Q3 2015, the aggregate balance fell from 3.6 to 1.4, continuing the positive balances that have been seen in recent months following sharp increases since early 2013.The figure suggests that, on average, households are beginning to feel their financial situation has improved over the past 12 months.

The Eurobarometer Consumer survey also asks respondents their views on whether now is a good time to save. Between the end of Q2 2015 and the end of Q3 2015, the balance increased from 1.9 to 4.4. The balance had been negative from April 2011 onwards, but following improvements from May 2013, the series reached a positive figure in June 2015. This continued throughout Q3 2015 and suggests that respondents believe now is a good time to save. Also, on average, households reported saving at least some of their income.

Additionally, Understanding Society2 provides information on the proportion of individuals that report being somewhat, mostly, or completely, satisfied with the income of their household and the proportion of households that report finding it quite, or very, difficult to get by financially.

In the financial year ending 2014, the proportion of individuals that reported finding it difficult to get by financially was 9.1%. This was 1.0 percentage point lower than a year earlier, continuing the downward trend since it peaked at 12.3% in the financial year ending 2010. Despite falling in recent years, the proportion of individuals that report finding it difficult to get by financially remains above pre-economic downturn levels.

In the financial year ending 2014, the percentage of respondents that were somewhat, mostly, or completely, satisfied with their level of income was 53.7%. This is broadly unchanged from a year earlier. Satisfaction with income demonstrated a downward trend between 2007 and the financial year ending 2012, recording a 4.5 percentage point decline between the financial years ending 2011 and 2012. While the increase in the financial year ending 2013 and 2014 shows some improvement in this trend, it remains below the levels seen prior to the economic downturn.

Distribution of income

Figure 3: Real Median Household Income and S80/20 ratio (1977 to financial year ending 2015)

UK

Figure 3: Real Median Household Income and S80/20 ratio (1977 to financial year ending 2015)
Source: Office for National Statistics

Notes:

  1. A household's disposable income is made up of all its earnings and investment income (including private pensions), plus cash benefits received from the state, minus direct taxes such as Income Tax and Council Tax. Equivalisation adjusts the income of households to reflect the different costs associated with different sizes and compositions of households.
  2. The S80/20 ratio is a ratio of total income received by the richest fifth of households to that received by the poorest fifth.
  3. Years are calendar years until 1993 and financial years from 1994/95 onwards.
  4. Income figures have been deflated to 2014/15 prices using an implied deflator for the household sector.

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In order to meet the considerable user demand for more timely data on household incomes, we developed a set of Experimental Statistics, produced using so-called "nowcasting" techniques. The latest nowcasting data can be found in Nowcasting household Income in the UK: Financial year ending 2015.

More information on the methodology can be found in Nowcasting household income in the UK: Methodology, 2015.

The estimates are marked (p) to indicate they are provisional – the finalised data will be released in the effects of taxes and benefits publication scheduled for mid-2016. All previous publications can be found on the effects of taxes and benefits publications page.

In the financial year ending 2015, median income (the income of the middle household if all households are ranked from the lowest income to the highest) was £25,600(p), which is 3.0% higher than financial year ending 2014. This continues the rise in median income seen since financial year ending 2013 and sees median income at a similar amount to its pre-economic downturn level.

As it represents the middle of the income distribution, the median household income provides a good indication of the income of the “typical” household. However, it is also important to consider how income is distributed around the middle, considering the equality of the income distribution.

One indicator is the ratio of total income received by the richest fifth of households to that received by the poorest fifth (other indicators are available). If the ratio gets larger then it implies increasing inequality between the top fifth and bottom fifth of households.

Between the financial years ending 2014 and 2015, this ratio saw a small decrease from 5.3 to 5.1(p); suggesting a small decrease in income inequality. However, since the turn of the millennium, changes in income inequality have been relatively small compared with previous decades.

Notes for Household income

  1. The Eurobarometer Consumer Survey is collected by GfK for the European Commission. There is more information about interpreting the Eurobarometer Consumer Survey in background note 5.

  2. Understanding Society is a household longitudinal study that captures information from a representative UK sample. More information can be found in background note 6.

  3. Real household disposable income (RHDI) is published in both non-seasonally adjusted (NSA) and seasonally adjusted (SA) formats in the United Kingdom Economic Accounts, with the latter removing seasonal effects to allow comparisons over time. However, it is sensitive to short-term changes in its components, particularly on a quarterly basis, meaning that quarter on quarter movements can appear volatile. To better present the longer term movement in household income, this bulletin presents RHDI growth on a quarter on the same quarter a year ago and on an annual basis.

  4. The income measure used in this section is real equivalised household disposable income. Disposable income is the amount of money that households have available for spending and saving after direct taxes (such as income tax and council tax) have been accounted for. It includes earnings from employment, private pensions and investments, as well as cash benefits provided by the state. Equivalisation is the process of accounting for the fact that households with many members are likely to need a higher income to achieve the same standard of living as households with fewer members.

  5. Throughout this release Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

Household spending

Income is a viable measure of the material well-being in the economy, however, a fuller picture of the economic well-being of a country can be found by looking at how much households consume.

In June 2014, we published Income, Expenditure and Personal Well-being, 2011/12, which presented new findings on the relationship between personal well-being, household income and expenditure using regression analysis. It found that household expenditure appeared to have a stronger relationship with personal well-being than household income.

Figure 4: Household final consumption expenditure per head, (Q1 2008 to Q3 2015)

UK

Figure 4: Household final consumption expenditure per head, (Q1 2008 to Q3 2015)
Source: Office for National Statistics

Notes:

  1. Households include non profit institutions serving households (NPISH).
  2. Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

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In Q3 2015, real household spending per head grew 0.6% compared with the previous quarter, continuing the general upward trend seen since Q3 2011. However, real household spending per head remains 1.0% below its pre-economic downturn level. This is despite the fact that real household income per head (excluding NPISH) was 3.3% above its pre-economic downturn level in Q3 2015.

Since Q3 2011, real household spending per head has steadily increased. This could reflect improved economic sentiment among households. In 2014 overall, real household spending per head was 1.7% higher than 2013. The pace of growth in 2014 was faster than the 1.3% growth seen between 2012 and 2013.

As with household income, for international comparisons it is important to consider benefits in kind. Real household and non-profit institutions serving households (NPISH) actual final consumption per head, which makes the adjustment for benefits in kind, can be found in the reference table.

Wealth

This section considers 2 different measures of wealth; net worth from the national accounts and household wealth from the Wealth and Assets Survey (WAS).

Total net worth

In 2014, the net worth of the economy as a whole (of households, businesses and the government) increased by £385 billion (5.0%), to £8.1 trillion. Total net worth is the sum of the values of financial assets (for example, shares and deposits) and non-financial assets (for example, dwellings and machinery), minus financial liabilities. Growth in total net worth between 2013 and 2014 was mainly attributable to an increase in the net worth of households, which increased by £1.0 trillion (12.2%) to £9.4 trillion. This was partly offset by decreases in the net worth of financial corporations (-£364 billion), non-financial corporations (-£54 billion) and government (-£227 billion).

This measure has not been adjusted for inflation, which was 1.5% on average, as measured by the Consumer Price Index (CPI) between 2013 and 2014. This suggests that the growth in total net worth was stronger than the growth in the general price level between 2013 and 2014.

The net worth of the economy as a whole is important as it indicates the sustainability of current levels of production and corresponding income flows. It is possible that a nation might be increasing its output while its stock of assets decline. This could mean that its level of production is unsustainable. However, for a complete appraisal of sustainability, natural, human and social capital should also be considered1.

Figure 5 shows total net worth between 2004 and 2014 for the whole economy and 3 of the sectors: households, financial and non-financial corporations. Between 2004 and 2007, total net worth increased year-on-year, mainly attributable to an increase in household net worth. Total net worth then fell in 2008 and 2009, before increasing again following the economic downturn.

Figure 5: Net financial and non-financial capital, (2004 to 2014)

UK

Figure 5: Net financial and non-financial capital, (2004 to 2014)
Source: Office for National Statistics

Notes:

  1. Here 'net' is used to describe the net wealth position (assets minus liabilities), rather than making an adjustment for capital consumption.
  2. Components may not sum to total due to rounding.
  3. NPISH - Non-profit institutions Serving Households.
  4. Click on image to view a larger version.

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Household net worth

Household net worth increased by £1.0 trillion (12.2%) to £9.4 trillion between 2013 and 2014. This is the largest year-on-year percentage change since 1998, when household net worth grew by 13.8%.

Household net worth provided the largest contribution to the growth in whole economy total net worth in 2014. This is equivalent to an average of £354,000 per household, compared with £316,000 per household in 2013.

As with total net worth, household net worth has not been adjusted for inflation. As a result, these figures should be taken in some context. For instance, household net worth includes non-financial assets, such as houses. Annual house price inflation was 10.0%2 in 2014. Figure 6 shows the household net worth position by type of asset between 2004 and 2014.

Figure 6: UK household and non-profit institutions serving households net worth by asset type, 2004 to 2014

UK

Figure 6: UK household and non-profit institutions serving households net worth by asset type, 2004 to 2014
Source: Office for National Statistics

Notes:

  1. Other non-financial assets shows all non-financial assets except for dwellings.
  2. NPISH stands for Non-Profit Institutions Serving Households.
  3. Components may not sum to total due to rounding.

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The main contributing asset category to the 12.2% increase in household net worth between 2013 and 2014 was net financial assets, which increased 17.3%.

Dwellings, the most valuable asset in household net worth (£4.8 trillion; 51% of household net worth in 2014), increased 9.1% over the same period. "Other non-financial" assets also grew 1.8% between 2013 and 2014 – a slower rate than increases seen in other asset categories.

Distribution of household wealth

In December 2015, the main results from the Wealth and Assets Survey for the period July 2012 to June 2014 were published. Estimates from WAS are updated every 2 years, therefore different measures demonstrating the distribution of wealth will be presented at this point in each quarterly bulletin.

Table 1 shows that in July 2012 to June 2014 half of all private households in Great Britain had a total wealth of £225,100 or more (all figures are at current prices and not adjusted for inflation). This does not however demonstrate the highly skewed distribution of wealth.

Table 1: Median household total wealth: July 2006 to June 2014

Great Britain

Great Britain £
July 2012 to June 2014 £225,100
July 2010 to June 2012 £216,500
July 2008 to June 2010 £204,300
July 2006 to June 20081 £196,700

Table source: Office for National Statistics

Table notes:

  1. July 2006 to June 2008 estimates are based on half sample.

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Table 1 shows the distribution of wealth across all households. In addition to the statistics given in the chart, the wealth held by the top 10% of households, which accounted for 45% of total aggregate household wealth, was around 5 times greater than the wealth of the bottom half of all households combined and over 875 times greater than that of the least wealthy 10% of households. For more details see Wealth in Great Britain Wave 4, 2012 to 2014.

Figure 7: Distribution of total household wealth, percentile points: July 2012 to June 2014

Great Britain

Figure 7: Distribution of total household wealth, percentile points:  July 2012 to June 2014
Source: Wealth and Assets Survey - Office for National Statistics

Notes:

  1. These measures are currently under development as part of the Measuring National Well-being programme and will be included in future releases where relevant.
  2. Calculate using a mix-adjusted index, which adjusts house prices for the types of property being sold from one year to the next.
  3. Here "net" is used to describe the net wealth position (assets minus liabilities), rather than making an adjustment for capital consumption.
  4. Other non-financial assets includes "other buildings and structures", "machinery and equipment", "cultivated biological products", "intellectual property products", "inventories" and "contracts, leases and licences".
  5. Throughout this release Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).
  6. Click on image to view a larger version.

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Notes for Wealth

  1. These measures are currently under development as part of the Measuring National Well-being programme and will be included in future releases where relevant.

  2. Calculated using a mix-adjusted index, which adjusts house prices for the types of property being sold from one year to the next.

  3. Here "net" is used to describe the net wealth position (assets minus liabilities), rather than making an adjustment for capital consumption.

  4. Other non-financial assets includes “other buildings and structures”, “machinery and equipment”, “cultivated biological products”, “intellectual property products”, “inventories” and “contracts, leases and licences”.

  5. Throughout this release Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

Unemployment

Figure 8: Unemployment, (Q1 2008 to Q3 2015)

UK

Figure 8: Unemployment, (Q1 2008 to Q3 2015)
Source: Office for National Statistics

Notes:

  1. All aged 16 and over.
  2. Seasonally adjusted.
  3. Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

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In the 3 months to September 2015 (Q3 2015), the unemployment rate for those aged 16 and over was 5.3%, down 0.3 percentage points from the 3 months to June 2015 (Q2 2015). This continues the downward trend since a peak in unemployment of 8.4% in Q4 2011. Further, unemployment is now only 0.1 percentage points above its pre-economic downturn level of 5.2% in Q1 2008.

The unemployment rate fell sharply between Q2 2013 and Q1 2015 at an average of 0.3 percentage points per quarter. It then stabilised in Q2 2015 before falling once again in Q3 2015. The fall in the unemployment rate has been accompanied by a fall in the inactivity rate. This was driven by lower retirement rates, lower long-term sick and disabled, and fewer people looking after their family.

Unemployment can have an impact on economic well-being through the impact on individuals’ income, as well as a direct impact on their personal well-being (how satisfied they are, how worthwhile they consider their life to be, their happiness and anxiety levels).

The employment rate for those aged 16 to 64 increased to 73.7% in the 3 months to September 2015 – the highest on record. This is up from 73.0% in the same quarter a year ago. The association between rising employment and rising part-time and temporary employment appears to be continuing, despite recent one-off dips. Since Q3 2008 the number of part-time employees has increased 7.4% and the number of temporary employees has increased 19.5%.

Notes for Unemployment

  1. Throughout this release Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

Inflation

Figure 9: Consumer Price Index (CPI) inflation, Jan 2008 to Sept 2015

UK

Figure 9: Consumer Price Index (CPI) inflation, Jan 2008 to Sept 2015
Source: Office for National Statistics

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In September 2015 (the final month of Q3 2015), the rate of inflation as measured by the Consumer Prices Index (CPI) fell back to its joint record low of negative 0.1%, which was last recorded in April 2015. Since early 2015, the CPI 12-month rate has been very close to 0.0%. This means that, taken as a whole, households have experienced very little change in prices compared with the same months in 2014. The September 2015 rate of inflation was down 0.1 percentage points from the 0.0% rate recorded in August 2015 and 0.2 percentage points from the 0.1% recorded in July 2015.

Since January 2008, inflation has twice peaked at 5.2% (in September 2008 and September 2011) but has since fallen sharply. Much of the recent downward pressure is accounted for by falling energy, food and fuel prices. This partially reflects the recent decline in oil prices, the appreciation of sterling and strong competition among retailers.

Since Q3 2015, CPI inflation has continued to remain weak. In the year to November 2015 (the latest data point available), the CPI was 0.1%. This was 0.2 percentage points higher than the negative 0.1% recorded in the year to October 2015. The main contributors to this rise were movements in transport costs, and alcohol and tobacco prices. This was partially offset by falling clothing prices.

The rate of inflation is important for economic well-being due to its effect on both income and savings. When prices increase faster than income for a sustained period, all else equal, incomes have less purchasing power and households feel worse off. Equally, if incomes increase faster than prices, over time, incomes can buy more and households feel better off. The income section of this release considers the evolution of household income, adjusted for inflation. In addition, inflation can impact on households through its effect on savings. If inflation is lower than the interest rates offered to households by financial institutions, then the real value of savings increases. Similarly, if inflation is higher than these interest rates then the real value of savings decreases.

Perceptions of inflation

It is important to consider not only inflation itself, but also individual’s perceptions of price trends. The Eurobarometer Consumer Survey asked respondents how they thought consumer prices had developed over the past 12 months. Individual’s perceptions of price changes have mapped reasonably well to actual changes in price levels over the last year.

There has been a general downward trend since mid-2011 with the aggregate balance falling to negative 7.9 in September 2015 (the last month of Q3), up from negative 8.6 in June 2015 (the last month of Q2). This compares with an aggregate balance of negative 6.2 in August 2015 and negative 7.1 in July 2015. An aggregate balance near zero implies that, on average, people perceive prices to be similar to that of a year ago whereas a negative figure means people perceive prices to have fallen over the last 12 months.

The slight negative figure is broadly in line with the negative 0.1% rate of inflation reported for the same period.

Notes for Inflation

  1. Throughout this release Q1 refers to Quarter 1 (January to March), Q2 refers to Quarter 2 (April to June), Q3 refers to Quarter 3 (July to September) and Q4 refers to Quarter 4 (October to December).

Background notes

  1. Economic well-being framework and indicators

    The framework and indicators used in this release were outlined in Economic Well-being, Framework and Indicators, published in November 2014.

    In the UK’s sector accounts, households and non-profit institutions serving households (NPISH) are combined to create a single households and NPISH sector. This is because NPISH are financed by households and their sole purpose is to serve households. Alongside this combined household and NPISH sector, we aim to produce separate accounts for these 2 sectors to satisfy user need by the autumn of 2017. Ahead of this date, we have published 2 main household measures,  household disposable income and real household disposable income for the household only sector (excluding NPISH). Following user demand, these series will be published quarterly as part of this release on a per head basis alongside the household and NPISH real household disposable income (RHDI) per head. Users should note that the data presented here are based on current compilation methods and are subject to change during the full separation of the 2 sectors.

  2. Release policy

    The data used in this version of the release are the latest available at 23 December 2015. The population estimates and projections used in this release are those published on 25 June 2015.

    Where possible, data used in this release relate to Q3 2015. Data for more recent months are available from the Consumer Price Indices and Labour Market Statistics statistical bulletins.

    Data in this release are published in other statistical bulletins:

    United Kingdom Economic Accounts, Table 1.1.5

    • real GDP per head

    • real net national disposable income per head

    • real gross household and non-profit institutions serving households (NPISH) disposable income per head

    • real household and NPISH final consumption expenditure per head real net domestic product per head

    • real net household and NPISH adjusted disposable income per head

    • real household and NPISH actual final consumption per head

    The National Balance Sheet

    • net wealth

    • net household and NPISH wealth

    Eurobarometer Consumer Survey (seasonally adjusted) (produced by GFK on behalf of the European Commission)

    • perception of financial situation over the past 12 months

    • perception of general economic situation over the past 12 months

    • perception of whether it is a good time to save

    • perception of financial statement of household

    • perception of price trends over the past 12 months

    Wealth and Assets Survey

    • median household wealth

    • distribution of total household wealth

    • wealth and income analysis

    The Effects of Taxes and Benefits on Household Income

    • real median equivalised household income deflated using the household final consumption expenditure (HHFCE) implied deflator

    • S80:20 ratio – the the ratio of total income received by the richest fifth of households to that received by the poorest fifth

    Labour Market Statistics

    • unemployment rate, all aged 16 and over

    Consumer Price Indices

    • consumer price index

    Understanding Society

    • finding it difficult to get by financially

    • somewhat, mostly or completely satisfied with the level of income of their household

  3. Revisions and reliability

    All data in this release will be subject to revision in accordance with the revisions policies of their original release. Estimates for the most recent quarters are provisional and are subject to revision in the light of updated source information. We currently provide an analysis of past revisions in statistical bulletins, which present time series. Details of the revisions are published in the original statistical bulletins.

    Most revisions reflect either the adoption of new statistical techniques or the incorporation of new information which allows the statistical error of previous estimates to be reduced.

    Only rarely are there avoidable “errors”, such as human or system failures, and such mistakes are made quite clear when they do occur.

    For more information about the revisions policies for indicators in this release:

    Our ‘Revisions policies for economic statistics’ webpage is dedicated to revisions to economic statistics and brings together our work on revisions analysis, linking to articles, revisions policies and important documentation from the Statistics Commission's report on revisions.

    Data that come from the Eurobarometer Consumer survey and Understanding Society releases are not subject to revision as all data are available at the time of the original release. These data will only be revised in light of methodological improvements or to correct errors. Any revisions will be made clear in this release.

  4. Interpreting the data

    Components may not sum to total due to rounding.

    We have published an article, 'Interpreting the Recent Behaviour of the Economy',  to aid interpretation of movements in the economy.

    We have also produced a short guide to the UK National Accounts.

    Real Household Disposable Income (RHDI) is published in both non-seasonally adjusted (NSA) and seasonally adjusted (SA) formats in the UK Economic Accounts, with the latter removing seasonal effects to allow comparisons over time. However, it is sensitive to short term changes in its components, particularly on a quarterly basis, meaning that quarter on quarter movements can appear volatile. To better present the longer term movement in household income, this bulletin presents RHDI growth on a quarter on the same quarter a year ago and annual basis.

  5. Interpreting the Eurobarometer Consumer Survey

    The Eurobarometer Consumer Survey, sourced from GFK on behalf of the European Commission, asks respondents a series of questions to determine their perceptions on a variety of factors which collectively give an overall consumer confidence indicator. For each question, an aggregate balance is given which ranges between negative 100 and positive 100.

    Balances are the difference between positive and negative answering options, measured as percentage points of total answers. Values range from negative 100, when all respondents choose the negative option (or the most negative one in the case of 5-option questions) to positive 100, when all respondents choose the positive (or the most positive) option.

    The questions used in this release are:

    Question 1: How has the financial situation of your household changed over the last 12 months?
    It has...

    • got a lot better

    • got a little better

    • stayed the same

    • got a little worse

    • got a lot worse

    • don’t know

    Question 3: How do you think the general economic situation in the country has changed over the past 12 months?
    It has...

    • got a lot better

    • got a little better

    • stayed the same

    • got a little worse

    • got a lot worse

    • don’t know

    Question 5: How do you think that consumer prices have developed over the last 12 months?
    They have...

    • risen a lot

    • risen moderately

    • risen slightly

    • stayed about the same

    • fallen

    • don’t know

    Question 10: In view of the general economic situation, do you think that now is...?

    • a very good moment to save

    • a fairly good moment to save

    • not a good moment to save

    • a very bad moment to save

    • don’t know

    Question 12: Which of these statements best describes the current financial situation of your household?

    • we are saving a lot

    • we are saving a little

    • we are just managing to make ends meet on our income

    • we are having to draw on our savings

    • we are running into debt

    • don’t know

    Further information on this Consumer survey is available from the Business and Consumer Survey section of the European Commission website.

  6. Interpreting Understanding Society

    Understanding Society is a household longitudinal study that captures information from a representative UK sample of 40,000 households. The data collected covers a broad range of topics including health, housing, employment, income and personal perceptions.

    The percentage of the population that said they were finding managing financially quite or very difficult and the percentage of the population that were somewhat, mostly or completely satisfied with their income was used, from the questions:

    Question 1: How well would you say you are managing financially these days? Would you say you are:

    • living comfortably

    • doing alright

    • just about getting by

    • finding it quite difficult

    • finding it very difficult

    Question 2: Please choose the number which you feel best describes how dissatisfied or satisfied you are with the following aspects of your current situation: the income of your household:

    • completely satisfied

    • mostly satisfied

    • somewhat satisfied

    • neither satisfied nor dissatisfied

    • somewhat dissatisfied

    • mostly dissatisfied

    • completely dissatisfied

    Further information on this survey is available from the Understanding Society website.

  7. Economic context

    We publish a monthly Economic Review discussing the economic background, giving economic commentary on the latest GDP estimate and other economic releases. The next article will be published on 8 January 2016.

    In June 2015, we released an article which explored the UK's trade and foreign direct investment relationship with the EU, titled how important is the European Union to UK trade and investment.

    In October 2015 we released an analysis of Foreign Direct Investment, the key driver of the recent deterioration in the UK’s Current Account. The Foreign Direct Investment 2014 data was released in December 2015.

  8. Special events

    We maintain a list of candidate special events in the special events calendar and keeps all events under review in line with our special events policy. As explained in our special events policy, it is not possible to separate the effects of special events from other changes in the series.

  9. Basic quality information

    Basic quality information for all indicators in this statistical bulletin can be found on our website:

  10. Methodology and articles

    We regularly publish methodological information and articles to give users more detailed information.

    For the National Accounts, methodological information and articles are available, detailing developments within the National Accounts; supplementary analyses of data to help users with the interpretation of statistics and guidance on the methodology used to produce the National Accounts. Methodological developments are part of the programme of continuous improvement to the UK National Accounts.

    For the Effects of Taxes and Benefits on Household Income release, methodological information is available, detailing the methodology in both the production of and the quality assurance of the data. Further detail and discussion can also be found in the Effects of Taxes and Benefits on Household Income, 2012/13 – Further Analysis and Methodology article.

    For the Wealth and Assets Survey, methodological information is available, detailing both the production and quality assurance of the data.

    For Labour Market Statistics methodological information is available, detailing both the production and quality assurance of the data. A full description of how consumer price indices are compiled is given in the Consumer Price Indices Technical Manual.

  11. Source of information on the distribution of income

    Effects of Taxes and Benefits on Household Income is the source for the information on the distribution of income included in this release. This has been chosen over other sources for a number of reasons:

    • the definition of income and the deflator used in the effects of taxes and benefits on household income are more closely aligned to those used in the national accounts

    • the estimates are the most timely available. Since 2014/15, new provisional estimates of main indicators, produced using so-called nowcasting techniques, have been published as Experimental Statistics. In future, these should be available within a few months of the end of the financial year. Additionally, work is ongoing to improve the timeliness of the main, survey-based estimates

    Should further breakdowns be required (for example, income distribution by region or type of household) then the larger sample size of Households Below Average Income, published by the Department for Work and Pensions, may be a more appropriate source. Further information on sources of data on household income can be found in our guide to sources of data on earnings and income.

  12. Economic well-being seminar

    On 3 March 2015 we hosted a seminar on economic well-being as part of the Economic Forum series of seminars. This seminar provided an overview of our work on economic wellbeing. It considered what we have learned to date, particularly covering the indicators from the quarterly Economic Well-being release. It also provided an overview of our work to develop wider measures of economic well-being, including the measurement of services households provide for themselves, the capitals approach to measuring sustainability and work to further develop measures of the distribution of income. Slides from the event are available on our website.

  13. Discussing measuring national well-being online

    There is a Measuring National Well-being community on the StatsUserNet website.

    StatsUserNet is the Royal Statistical Society’s interactive site for users of Official Statistics.

    Here you will be able to find and share information on the development of measures of national wellbeing. This includes latest releases and news from our Measuring National Well-being programme.

  14. Your views matter

    We would welcome any feedback you might have regarding this release and its associated commentary and we would be particularly interested in knowing how you make use of these data to inform our work. Please contact us via email: economic.wellbeing@ons.gsi.gov.uk, or telephone Dominic Webber on +44 (0)1633 45 6246.

  15. Measuring national well-being

    This article is published as part of our Measuring National Well-being programme. The programme aims to produce accepted and trusted measures of the well-being of the nation - how the UK as a whole is doing. Further information on Measuring National Well-being is available on our website with a full list of well-being publications.

  16. Following ONS

    Follow us on Twitter and receive up-to-date information about our statistical releases. Like us on Facebook to receive our updates in your newsfeed and to post comments on our page.

  17. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

Statistical contacts

Name Phone Department Email
Dominic Webber +44 (0)1633 456246 Measuring National Well-being economic.wellbeing@ons.gsi.gov.uk
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