GDP growth in Q4 2017 is expected to match Q3 at 0.4%
This estimate is based on PwC’s “nowcasting” model, which uses machine learning techniques to produce more timely and accurate GDP estimates
PwC’s main scenario for 2018 growth has edged up from 1.4% to 1.5% due to stronger global economic prospects.
UK GDP growth is estimated to have reached 1.8%, with a 0.4% rise in the fourth quarter of the year, according to PwC’s latest projections from its nowcasting model. Expansion in the services and industrial production sectors were the main drivers behind growth in the fourth quarter, offset in part by a continued estimated decline in construction output.
John Hawksworth, chief economist at PwC, commented:
“Relatively strong retail sales and manufacturing growth mean that we expect overall UK GDP growth to hold steady at 0.4% in the fourth quarter of 2017, which implies annual growth of 1.8% in 2017 as a whole based on the latest revised ONS data.
“The UK economy regained a little momentum in the second half of 2017, helped by a stronger global economy, and we expect this to continue into 2018. We have therefore edged up our main scenario for 2018 GDP growth from 1.4% to 1.5%. Consumer spending growth is projected to be only around 1% this year, but net exports should make a positive contribution to UK growth given the robust state of the global economy.
“There is no infallible way to estimate current GDP growth, but our nowcasting model uses the latest machine learning techniques. This allows us to look at a very broad range of explanatory variables, ahead of official preliminary estimates, in order to estimate how fast the economy is growing.”
In developing the nowcasting model PwC economists have tested its performance over the past six years using the data that would have been available at the end of each quarter (i.e. a month in advance of the ONS preliminary figure). PwC’s nowcasting model is able to pick up changes in the direction of GDP growth correctly 95% of the time over the six year testing period, with an average error of 0.15 percentage points. This improves on the commonly referenced Reuters Poll of forecasters and comes close to matching the accuracy of the ONS’s own preliminary estimate of real GDP growth (taken as a forecast of final real GDP growth) over the same period.
Notes for editors
1. PwC’s nowcasting model takes a broad set of frequently released indicators and uses a machine learning technique known as “Stochastic Gradient Boosting” to estimate the relationship between these different indicators and past GDP growth. Using this method, (i) accounts for complex interactions and non-linear relationships in the data; (ii) creates many different models which learn from the previous model’s mistakes sequentially to create a more accurate final prediction; and (iii) ensures the final model is able to generalise well to new, unseen data by using a type of cross-validation (fitting the model over different sub-sets of the data).
2. As the service sector now accounts for almost 80% of UK GDP, a number of services-focused variables have been included in the consolidated set of variables that the model considers to nowcast GDP growth. These have also been complemented with other indicators to account for the industrial production and construction sectors, as well as “softer” indicators to capture expectations.
3. To produce a nowcast the model requires the changes in different indicators over the quarter in question. In many cases such data are not completely available when the nowcast is produced so a number of auxiliary statistical models are used to forecast missing data points. Revisions of these forecasts based upon realised data can materially affect our projections.
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