The author describes results obtained by using a new methodology to estimate potential output for the United Kingdom. The estimation method, which follows Rennison (2003) and Gosselin and Lalonde (2002), shows that combining the use of a Hodrick-Prescott filter and a structural vector autoregression (SVAR) is optimal to estimating potential output. Using this method, the author estimates two components of U.K. potential output: the full-employment labour input and the trend rate of labour-productivity growth. This type of decomposition is similar to the one used by HM Treasury (2002) and is particularly useful for identifying the source of fluctuations in potential output. The author's results show that growth in potential output was primarily driven by growth in labour productivity over the 1971–2003 period, whereas its volatility is accounted for by the labour-input component. In addition, the author attempts to explain movements in inflation using this new methodology.