Investing jargon made simple: What is gross domestic product (GDP)?

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

When we talk about economic growth, you may have heard us mentioning GDP. This stands for Gross Domestic Product and, put simply, it is a measure of the size of a country’s economy.

The Office for National Statistics collects data from thousands of UK companies, and calculations are done one of three ways:

• adding up the total value of goods and services produced by the country
• adding up everyone’s income
• adding up what everyone in the country has spent.

As you can imagine, trying to reach a figure that accurately reflects the size of the economy is virtually impossible. However, as long as the figure is calculated each month in a consistent manner then the movement or trend in the size of the figure can be useful in determining the country’s economic state of health.

Growth in the GDP figure illustrates that people are earning more, spending more and that businesses are expanding. The rate of growth can indicate how well an economy is doing and can also be used to compare one economy against another.

The latest GDP report from the Office for National Statistics estimates that the UK economy grew by 0.4% in the three months to June, compared with a rate of just 0.2% in the first quarter of the year. For the year as a whole the UK is forecast to grow by approximately 1.3% this year compared to a growth rate of 1.7% last year. So, the economy is still growing, just at a slower rate.

You can hear more about GDP in our weekly money round up, with the Gross Domestic Product of countries such as the UK, US, Europe and China regularly being covered.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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