Chained volume measure: what it means

The ONS method for showing GDP and other output after removing price changes, by linking year-to-year volume changes together. This is 'real' GDP.

A chained volume measure (CVM) shows how the quantity of output changes once price changes are removed. The ONS calculates volume growth for each year using the previous year's prices, then links ("chains") these growth rates together to form a continuous series expressed in the prices of a reference year.

Why chain?

Relative prices shift over time. Valuing everything at the prices of one distant year would over-weight goods that have since become cheaper, such as computers. Updating the weights each year keeps the measure relevant.

Worked example

Suppose hypothetical volume growth is 2% in year one and 1% in year two. Chaining gives cumulative growth of 1.02 x 1.01, about 3.0%. If the reference year level is £1,000 billion, the CVM series reads £1,020 billion and then about £1,030 billion.

How it trips up claims

• Components of a CVM series do not always add exactly to the total, because of chaining. This is expected.
• The pound levels depend on the reference year; growth rates are what matter.
• Headline GDP growth in ONS bulletins is based on CVM figures, not nominal GDP.

The ONS publishes UK GDP as a chained volume measure in series ABMI.

Also searched as: CVM, real GDP, volume measure, constant price GDP, chain-linked

Official definitions: ONS: GDP chained volume measures, seasonally adjusted (ABMI) · ONS: Quarterly national accounts, latest bulletin

Key figures where it matters

• UK GDP growth (quarterly)
• UK GDP per head
• UK labour productivity (output per hour)
• UK monthly GDP growth
• Retail sales volume growth (Great Britain)

Questions that use this term

• How big is the UK economy (GDP)?
• Is the UK in recession?
• How is UK productivity measured?

Related terms

• Nominal GDP: Gross domestic product measured at current prices, without adjusting for inflation. Used for debt-to-GDP and spending-to-GDP ratios.
• Real terms: A figure adjusted to remove the effect of inflation, so amounts from different years can be compared by what they would buy rather than their face value.
• Base year: The reference period against which an index is set to 100, or whose prices are used to express real-terms figures.
• Quarter-on-quarter change: The change from one three-month period to the next, such as April to June compared with January to March. Used for GDP growth.

More inflation, prices and the economy terms: CPI (Consumer Prices Index) · CPIH · RPI (Retail Prices Index) · Core inflation · Nominal GDP · Purchasing power parity (PPP) · Bank Rate · Quantitative easing (QE) · Quantitative tightening (QT) · GDP deflator · Output gap · Productivity.