GDP: What is it and how does it impact the cost of living?

The UK’s newest gross home product (GDP) figures are set to be launched on Friday, offering yet one more indication concerning the path of the economic system.

At 7:00 a.m. tomorrow, the Office for National Statistics (ONS) will release its monthly GDP estimates, which signal the size and growth of the UK economy across recent months.

Although the first quarterly UK figures for 2025 revealed that GDP grew by 0.7 per cent on the previous quarter, there are concerns that the UK economy simply isn’t growing fast enough.

Tumultuous US trade tariffs, a weakening pound sterling and rising inflation could counsel that the financial consequence is trying unsure.

The most recent GDP announcement comes simply over a month after economists revealed that the UK economic system had shrunk greater than anticipated, which Chancellor Rachel Reeves expressed on the time as being “clearly disappointing”.

“Our primary mission is delivering development to place more cash in individuals’s pockets by means of our Plan for Change, and whereas these numbers are clearly disappointing, I am decided to ship on that mission,” she instructed the BBC.

She additionally added: “We’re investing in Britain’s renewal to make working individuals higher off”.

So what precisely is GDP and the way does it influence spending and the cost of living?

Right here’s all the things you must know.

What’s Gross Home Product (GDP)?

GDP stands for gross home product and is a measure of the dimensions and well being of a rustic’s economic system over a time frame (normally one quarter or one yr). It is usually used to match the dimensions of various economies at completely different closing dates.

Items are issues equivalent to a brand new washer, or milk that’s purchased within the grocery store. Companies embrace a haircut from a hairdresser or repairs to your house by your plumber.

Nonetheless, gov.uk explains that it’s solely the ultimate items and companies which can be bought that matter for general GDP.

For instance, if tyres roll off a manufacturing line, and are bought to a automobile producer, the worth of the tyres isn’t included in GDP, it’s mirrored within the worth of the automobile.

The extra you pay, or the market worth of that good or service, is what’s necessary, as these quantities are added collectively, with a view to get general GDP.

When GDP goes up, the economic system is rising, which means individuals are spending extra and companies are increasing. Because of this, GDP development, which can also be referred to as financial development, or just “development” — is a key measure of the general energy of an economic system.

What’s Labour going to do to spice up the economic system?

Final yr, Ms Reeves mentioned that “a decade of nationwide renewal has begun” and hoped that is the primary of many items of fine information heading her method.

However by July 2024, Reeves had adopted a extra sobering stance, saying: “I additionally simply have to be actually clear and sincere concerning the scale of the problem that we’ve inherited with the general public funds.”

“We’re going to must make tough selections. We have to repair the foundations earlier than we will begin rebuilding issues in Britain.

“However in contrast to the earlier authorities, I’m going to be sincere concerning the scale of the problem. I’m going to stage with individuals.”

The financial outlook has been fraught with challenges because the nation entered 2025, with the economic system not trying as sturdy as many had hoped.

Authorities debt is rising, and the Office for Budget Responsibility lately warned that: “The UK public funds are in an unsustainable place in the long term. The UK can not afford the array of guarantees that it has made to the general public.”

GDP impacts atypical Brits in a number of methods, together with by means of employment alternatives and the price of residing.

Indicators that the economic system is rising are normally welcomed, however it’s not all the time essentially excellent news.

In a interval of GDP development, companies are inclined to do properly and, on paper, usually tend to make use of new individuals, so there’s an opportunity that it contributes to job development.

But when the announcement reveals that GDP has risen, this additionally alerts to companies that there’s demand for the product, so they may additionally elevate their costs (inflation).

GDP development can also be normally related to rising wages, however once more, the truth is much from clear-cut. In 2025, actual wages within the UK haven’t elevated as a lot as GDP, and plenty of households are struggling.

With simply 50 households proudly owning extra wealth than half of the UK inhabitants, GDP development doesn’t are inclined to translate into even distribution amongst Brits and doesn’t assure improved residing requirements.

By itself, GDP development can sound promising, however it seemingly doesn’t imply a lot for normal voters who proceed to see their payments improve however their wages stagnate.

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GDP: What is it and how does it impact the cost of living?

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