What is GDP and how does it affect me?

GDP is an important tool for judging how well, or badly, an economy is doing. It lets the government work out how much it can afford to tax and spend. It also helps businesses decide whether to expand and hire more people. Latest figures show UK economy fell into recession at the end of 2023.

Most economists, politicians and businesses like to see GDP steadily rising. It means people are spending more, extra jobs are created, more tax is paid and workers get better pay rises. When GDP is falling, it means the economy is shrinking - which can be bad news for businesses and workers. GDP grew by 0.

2%, boosted by stronger sales in shops and online and more construction activity. Growing the economy was one of five pledges Prime Minister Rishi Sunak made in January 2023. The government can use growing GDP as evidence that it is doing a good job of managing the economy. When the economy shrinks and a country goes into recession, these things can go into reverse.

This means more money for the government that it can choose to spend on public services. Governments tend to get less money in tax, which means they may decide to freeze or cut public spending. Or taxes may rise. Government borrowing was equivalent to about 14% of the UK#39;s total GDP in the first year of the Covid pandemic.

In 2020, the most severe UK recession for more than 300 years, forced the government to borrow hundreds of billions of pounds to support the economy. UK produces one of the quickest estimates of GDP of the major economies. Only about 60% of the data is available, so the figure is revised as more information comes in. Just because GDP is increasing, it doesn’t mean that an individual person#39;s standard of living is improving.

Hidden economy: Unpaid work such as caring for children or elderly relatives isn’t captured. Critics argue that GDP doesn#39;t take into account whether the economic growth it measures is sustainable, or the environmental damage it might do. Alternative measures have been developed which try to capture this. Despite its limitations, GDP is still the most widely-used measure for most government decisions.