What is GDP?

GDP (gross domestic product) is a measure of all the economic activity of companies, governments and people in a country and is used to indicate the health of that economy.

It is calculated either by adding up the value of all the goods and services produced or by value of all the income earned in a country over a specific period. When you hear about economic growth in the news this typically refers to GDP growth. An annual GDP growth rate of 2%, then, simply means that the economy has grown by 2% over the past year.

GDP doesn’t tell the whole story. For example, it doesn’t tell you whether people’s living standards are increasing, it doesn’t consider whether the growth is environmentally sustainable, or whether people’s wellbeing has improved.

How does GDP affect people and businesses?

If GDP goes up a lot, people are likely to be earning and spending more and businesses are more likely to increase recruitment and investment. People and firms pay more in tax because they’re earning and spending more, providing more money for the government to spend on public services.

Conversely, if GDP growth is weak or falling, companies are more likely to cut jobs, people earn and spend less, leaving them feeling worse off. Governments tend to generate less tax revenue, which means they may decide to cut public spending or raise taxes.

What is the state of play in November 2026?

Following a strong first quarter of the year (0.6%), UK GDP growth was similarly strong in Q2 2026 at 0.5%. This means that the UK was the fastest-growing G7 economy in the first half of 2026 (see chart 1). GDP for 2025 as a whole is estimated to have increased by 1.2%, up slightly from 1.1% in 2024. 

Real GDP per head – a better measure of change in living standards – is estimated to have increased by 0.5% in Q2 2026 and is up by 1.2% compared with the same quarter a year ago. GDP per head grew by 1.1% over the first half of 2026. Excluding the swings caused by the COVID-19 pandemic, that is the largest increase since late 2017.

UK GDP per head has grown by an average of just 0.5% a year since the global financial crisis (see chart 2), compared to an average of 2.4% a year over the previous 50 years that preceded the crisis.

What is the outlook for UK GDP?

The Office for Budget Responsibility (OBR) published its economic outlook on 28 October 2026, which revealed a mixed assessment of the UK’s growth prospects. The OBR modestly upgraded its growth forecast in this year to 1.2%, from its previous estimate of 1.1%. However, the OBR sharply lowered its growth forecast for 2027 from 1.6% to 1.0%, amid the squeeze from higher inflation and rising interest rates.

Some of the main challenges facing UK GDP

• Poor productivity lowers potential output and weakens the resilience of an economy.
• Low labour supply stunts GDP by stifling firms’ ability to produce goods and services.
• Anaemic investment limits future GDP growth by restraining innovation and productivity.
• Restrictive economic policy including the squeeze on households’ and firms’ finances from higher taxes.
• External shocks (for example, the US-Iran conflict, external oil price shocks) that cause short- and long-term barriers to GDP growth.