Index of Production: April 2015

• Total production output is estimated to have increased by 1.2% in April 2015 compared with April 2014.There were increases in all 4 main sectors, with the largest contribution coming from mining & quarrying, which increased by 6.2%

• Manufacturing output increased by 0.2% in April 2015 compared with April 2014. The largest contribution to the increase came from the manufacture of transport equipment

• Total production output is estimated to have increased by 0.4% in April 2015 compared with March 2015. There were increases in 2 of the 4 main sectors, with the largest contribution coming from mining & quarrying, which increased by 5.6%

• Manufacturing output decreased by 0.4% in April 2015 compared with March 2015. The largest contribution to the decrease in manufacturing came from basic pharmaceutical products & pharmaceutical preparations

• In the 3 months to April 2015, production and manufacturing were 9.5% and 4.4% respectively below their figures reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008

• In this release, the earliest period open for revision was January 2014, in line with the National Accounts revisions policy. There was minimal impact on previously published GDP estimates resulting from revisions to these periods

This bulletin presents the monthly estimates of the Index of Production (IoP) for the UK production industries, April 2015. The IoP is one of the earliest indicators of growth and it measures output in the manufacturing (the largest component of production), mining & quarrying, energy supply and water supply & waste management industries. The production industries account for 14.6% of the output approach to the measurement of gross domestic product.

IoP values are referenced to 2011 so that the average for 2011 is equal to 100. Therefore, currently an index value of 110 would indicate that output is 10% higher than the average for 2011. The index estimates are mainly based on a monthly business survey (MBS) of approximately 6,000 businesses, covering all the territory of the UK without geographical breakdown. The total IoP estimate and various breakdowns are widely used in private and public sector institutions. Care should be taken when using the month-on-month growth rates due to their volatility. All figures contained within this release are seasonally adjusted estimates, unless otherwise stated.

Table 1 shows the main figures for this release. Figure 1 shows the production and manufacturing series from January 2013 to April 2015. This release also presents the economic context to the IoP; GDP impact and components; a supplementary analysis to the IoP; industry spotlight; and a background notes section for an assessment of the quality of the IoP, as well as an explanation of the terms used in this bulletin.

We have developed guidelines for measuring statistical quality (1.22 Mb Pdf) ; these are based upon the 5 European statistical system (ESS) quality dimensions. The IoP in its current form adheres to these requirements. One important dimension for measuring statistical quality is accuracy. That is, the extent to which the estimate measures the underlying "true" value of the output growth (of the production industries) in the UK for a particular period. Although the IoP meets its legal requirements for statistical accuracy, still as in all survey-based estimates, by definition, its estimates are subject to statistical uncertainty or errors. These errors consist of 2 main elements; the sampling error and the non-sampling error.

For many well-established statistics we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. The IoP however, is constructed from a variety of data sources, some of which are not based on random samples. As a result, we currently do not publish a measure of the sampling error associated with the IoP underlying data, mainly the monthly business survey (MBS). However, research is currently under way to attempt to measure the standard error and the results of this will be published on completion.

Non-sampling errors are not easy to quantify but can be caused by coverage issues, measurement, processing and non-response. The response rate gives an indication of the likely impact of non-response error on the survey estimates. From January 2015, the MBS response rates for data included in the IoP publication were published in the background methods section of the statistical bulletin. This is to give further information of the percentages of the amount of turnover and questionnaire forms returned. We also publish MBS historical response rates back to 2010.

A further dimension of measuring accuracy is reliability, which can be measured using evidence from analyses of revisions to assess the closeness of early estimates to subsequent estimated values. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. Figures for the most recent months are provisional and subject to revision in light of:

• late responses to surveys and administrative sources

• forecasts being replaced by actual data

• revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually

Revisions to the IoP are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal. Further information on the most recent revisions analysis can be found in the revisions to IoP section and in the revision triangles (4.45 Mb ZIP) section in the bulletin background note.

It should be noted that care should be taken when using the month-on-month growth rates, due to their volatility. Further information on the latest quality and methodology information (QMI) for the IoP can be found in the QMI paper. Furthermore, the IoP is constantly being reviewed and improved for accuracy and uncertainty as part of the GDP(O) improvement project; further details of improvements are published each year as part of a suite of Blue Book articles. A full list of the GDP(O) improvement project articles can be found on the Improvements page of our website.

Figure 2 shows that the pace of growth in manufacturing exceeded that of total production between 2003 and 2006. This trend was, however, temporarily interrupted following the economic downturn in 2008, when manufacturing fell by a greater extent than total production.

Following the 2008 to 2009 downturn, total production and manufacturing returned to growth for a short period, before falling again in 2011 and 2012. This coincided with falling gross domestic product (GDP) in the euro area. Total production was particularly affected, falling below its downturn trough in Quarter 4 (Oct to Dec) 2012, while manufacturing fell by a smaller amount.

For production and manufacturing, conditions have improved since the start of 2015. The Second Estimate reported that GDP rose by 0.3% in Quarter 1 (Jan to Mar) 2015, marking a ninth consecutive quarter of expansion, mainly due to the services industries which grew by 0.4% on the quarter. Looking at the other components of GDP, agriculture experienced a 0.2% contraction in output, while construction fell by a marked 1.1%, a second successive quarter of decline.

The production industry continued to show growth on an annual basis. Output was 1.0% higher in Quarter 1 (Jan to Mar) 2015 compared with Quarter 1 (Jan to Mar) 2014 with manufacturing 1.4% higher, however this does represent the weakest quarter-on-year growth since Quarter 3 (July to Sep) 2013 and Quarter 4 (Oct to Dec) 2013 respectively.

According to the recent GDP bulletin, headline GDP surpassed its pre-downturn peak in Quarter 3 (July to Sep) 2013 and services (which account for over 78% of total GDP) remained the only headline industry to do so. Output in the production and construction industries in Quarter 1 (Jan to Mar) 2015 remained below levels experienced just before the onset of the downturn, by 10.3% and 8.0% respectively (according to the Second Estimate of GDP). Manufacturing output has performed more favourably compared with these industries; however output still remained 4.8% below pre-downturn levels.

The recent period of rising manufacturing output has coincided with low price inflation in the manufacturing industry, both in terms of the prices manufacturers pay for materials and fuels used in the production process (input prices) and the prices they charge for the goods they produce (output prices). We publish both measures in the Producer Price Inflation bulletin. Input prices marked their 18th successive month of deflation in the year to April 2015, with prices falling by 11.7%, although this was up from a fall of 12.8% in the year to March 2015. Output prices have also experienced deflation, falling by 1.7% on an annual basis, unchanged from the previous two months.

International perspective

Globally, the performance of manufacturing output has varied across G7 nations since the onset of the economic downturn (Figure 3). Japan experienced the largest average annual fall in output over 2008 and 2009 (12.5% per annum), whereas the smallest decline was in the UK (6.1% per annum).

Following the 2008 to 2009 economic downturn, all G7 nations’ manufacturing industries returned to growth. However, except for the USA, all members experienced further declines between the second half of 2012 and the first half of 2013, particularly in Italy and Japan. More recently, in Quarter 1 (Jan to Mar) 2015, France, Germany, Italy, Japan and the UK experienced growth in manufacturing output, although this has been to varying degrees. Japan experienced the strongest growth on a quarterly basis (1.6% ), France and Germany grew by 0.8% and 0.5% respectively, while growth was relatively modest in Italy and the UK. Canada and the USA both experienced a decline in manufacturing output, the former by a marked 1.1%.

For most member states, manufacturing output remained below their respective pre-downturn levels experienced in 2007. Output in Italy, France and Japan remained a marked 23.3%, 15.5% and 12.7% below respective pre-downturn levels . However, in Quarter 3 (July to Sep) 2014, the USA did surpass its pre-downturn level and exceeded it by 1.3% in Quarter 1 (Jan to Mar) 2015, while Germany was also above its respective pre-downturn level, by 2.5%.

Figure 4 presents month-on-year percentage growth rates in 8 of the 13 UK manufacturing sub-industries for March 2015, alongside comparable growth rates achieved in Germany, France, Italy and the euro area. This shows that the UK experienced slightly slower manufacturing growth at 1.2%, compared to total euro area manufacturing growth of 1.5%. Manufacturing output fell in Germany by 0.7%, while France and Italy both experienced rising output over the same period.

Figure 4 shows that the UK’s comparable strength is currently concentrated in the manufacture of chemical products; partially offset by relative weakness in the manufacture of ‘coke & refined petroleum products’ as well as ‘machinery and equipment not elsewhere classified’. The latter includes general purpose machinery such as engines, turbines, pumps, compressors and gears among other products.

In this release, the earliest period open for revision was January 2014, in line with the National Accounts revisions policy (43.3 Kb Pdf).

The estimates for the production industries are generally the first of the main components for the output approach to the measurement of GDP to be published (agriculture, construction and services are the other components). All the components are already available for Quarter 1 (Jan to Mar) 2015. Details of the data already published can be found in Table 2. The Retail Sales Index reported in Table 2 is not a direct component of the output approach to measuring GDP. It does, however, feed into estimates of GDP in 2 ways. Firstly, it feeds into the services industries when GDP is measured from the output approach. Secondly, it is a data source used to measure household final consumption expenditure which feeds into GDP estimates when measured from the expenditure approach.

Output in the construction industry for April 2015 will be published on 12 June 2015 and services output for the same period on 30 June 2015.

Total production

Total production output in April 2015 increased by 1.2% compared with April 2014 (Table 3). This increase reflected rises in all of its 4 main sectors with mining & quarrying having the largest contribution, increasing by 6.2% and contributing 0.9 percentage points to total production. There were also increases in water supply, sewerage & waste management of 2.2%; in manufacturing of 0.2%; and in electricity, gas, steam & air conditioning output of 0.6%.

Between March 2015 and April 2015, total production increased by 0.4% (Table 3). There were increases in 2 of its 4 main sectors. The largest upward contributions came from mining & quarrying, which increased by 5.6% and contributed 0.8 percentage points and water supply, sewerage & waste management output, which increased by 0.9% and contributed 0.1 percentage points to total production. Partially offsetting the increases were decreases in manufacturing, which decreased by 0.4% and contributed 0.3 percentage points to total production and electricity, gas, steam & air conditioning output, which decreased by 3.3% and contributed 0.2 percentage points to total production (Figure 6).

Manufacturing

Manufacturing output increased by 0.2% between April 2014 and April 2015 and contributed 0.2 percentage points to total production growth. Output increased in 6 of the 13 manufacturing sub-sectors compared with a year ago (Figure 5 for the contribution to production growth from each of the main sectors and sub-sectors). The manufacturing sub-sector with the largest upward contribution to total production growth was the manufacture of transport equipment, which increased by 6.4% and contributed 0.8 percentage points to total production. The main contributor within this sub-sector was the manufacture of air & spacecraft & related machinery, which increased by 15.1% and contributed 0.7 percentage points to total production. This was this industry’s eighth consecutive increase compared with a year ago.

In contrast, the manufacturing sub-sector with the largest downward contribution to total production compared with a year ago was the manufacture of machinery & equipment not elsewhere classified, which decreased by 9.7% and contributed 0.5 percentage points to total production. This was the seventh consecutive decrease compared with a year ago and weakness in the global market was cited as a possible contributing factor.

Manufacturing output decreased by 0.4% between March 2015 and April 2015, having increased in March 2015 by 0.4%. There were decreases in 7 of the 13 manufacturing subsectors (Figure 6). The manufacturing sub-sector with the largest contribution to the decrease in total production was the manufacture of basic pharmaceutical products & pharmaceutical preparations, which decreased by 6.0% and had a downward contribution of 0.3 percentage points to total production. This weakness followed an increase in output of 6.8% in the previous month.

In contrast to the above decreases, the manufacturing sub-sector with the largest upward contribution to total production was the manufacture of chemicals & chemical products, which increased by 1.6% and contributed 0.1 percentage points to total production, having decreased by 1.2% the previous month.

Mining and quarrying

Mining & quarrying output increased by 6.2% between April 2014 and April 2015 and contributed 0.9 percentage points to total production. The sub-sector with the largest upward contribution was the extraction of crude petroleum & natural gas, which increased by 9.8% and contributed 1.0 percentage points to total production (Figure 5). This was due to reported increases in crude oil production compared with last year when planned maintenance in a number of terminals hampered production.

Mining & quarrying output increased by 5.6% in April 2015 compared with March 2015. The sub-sector with the largest upward contribution was the extraction of crude petroleum & natural gas, which increased by 8.7% and contributed 0.9 percentage points to total production (Figure 6). This was due to increases in crude oil production and NGL (natural gas liquids) from the offshore pipelines and the offshore loaders in some of the North Sea terminals. Evidence from the Department of Energy and Climate Change (DECC) suggested the increases in crude oil production were in line with the rises seen in the global oil supply market.

Electricity, gas, steam & air conditioning

Electricity, gas, steam & air conditioning output increased by 0.6% in April 2015 compared with April 2014 and had a negligible contribution to total production (Figure 5). This reflected an increase in output in 1 of its 2 sub-sectors, the manufacture of gas & distribution of gaseous fuels through mains, which increased by 7.2% and contributed 0.1 percentage points to total production. Anecdotal evidence suggested that the rise compared with a year ago was due to an increase in demand for gas for the purpose of generating electricity.

Electricity, gas, steam & air conditioning output decreased by 3.3% in April 2015 compared with March 2015 and contributed 0.2 percentage points to total production (Figure 6), having had a smaller decrease of 1.6% in the previous month. The decrease was in both of its sub-sectors, with the largest downward contribution coming from the manufacture of gas & distribution of gaseous fuels through mains, which decreased by 5.7% and contributed 0.1 percentage points to total production. Anecdotal evidence suggested that the monthly decrease in output was mainly attributed to a reduction in demand for domestic space heating and was in line with the usual fluctuations in this industry’s output.

Water & waste management

Water supply, sewerage & waste management output increased by 2.2% in April 2015 compared with April 2014 and contributed 0.2 percentage points to total production. This increase reflected a rise in 3 of its 4 sub-sectors’ output (Figure 5), with largest upward contribution coming from waste collection, treatment & disposal activities, which increased by 6.6% and contributed 0.2 percentage points to total production.

Water supply, sewerage & waste management output increased by 0.9% between March 2015 and April 2015, the fourth consecutive increase since December 2014. This increase reflected a rise in 2 of its 4 sub-sectors (Figure 6), with the largest contribution coming from waste collection, treatment & disposal activities, which increased by 4.1% and contributed 0.1 percentage points to total production, having decreased by 1.0% in the previous month.

Revisions to IoP

Revisions to the Index of Production follow the National Accounts Revisions policy (43.3 Kb Pdf). Revisions are caused by a number of factors including, but not limited to revisions to source data due to late responses to the monthly business survey (MBS), actual data replacing forecast data and revisions to seasonal factors that are re-estimated every period. We produce revisions triangles of production and manufacturing growth to provide users with an indication of the reliability of this key indicator. Statistical tests are performed on the average revision to test if it is statistically significantly different from zero. Further information can be found in background note 5.

In this release of data, the earliest period open for revision is January 2014. There were no revisions to IoP month-on-month growth rates greater than 0.1%. This resulted in minimal impact on previously published GDP estimates as a result of this revision. Further details on the revisions to IoP components can be found in the IoP5R tables, located within the data section of this release.

Industry CC covers “wood, paper products and printing” in the Index of Production data. The industry accounts for around 7.1% of manufacturing output. According to the Standard Industrial Classification (SIC07), this industry includes the manufacture of wood products (division 16), the manufacture of paper products (division 17) and the printing and reproduction of recorded media (division 18). Each sub-industry accounts for 19%, 35% and 46% of the total industry respectively.

A historical look at the “wood, paper products and printing” industry shows a trend that broadly follows total manufacturing output. The industry experienced strong growth from Quarter 1 (Jan to Mar) 1983 to its peak in Quarter 2 (Apr to June) 1990, rising at an average rate of 1.2% per Quarter. However, output in the industry then declined steadily before falling by 23.2% between Quarter 4 (Oct to Dec) 2007 and Quarter 4 (Oct to Dec) 2012. The subsequent recovery has been modest and output remains 17.3% below Quarter 4 (Oct to Dec) 2007 levels.

The quarterly paths of divisions 16, 17 and 18 since Quarter 1 (Jan to Mar) 1997 have been varied. Division 16 was particularly affected during the downturn, with output contracting by 37.5% between Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2012. The decline of division 17 over the period was relatively less marked, while division 18 shows a longer term decline. The latter could be attributed to structural factors such as a change in the way that we obtain news and other printed information, toward digital devices.

Many of the wood products produced by industry 16 are likely to be used in the construction industry, such as beams, doors and stairs among other products. For this reason, it is perhaps unsurprising that output growth in this industry broadly tracks movements in headline construction output, as shown in Figure 9. Compared with the same quarter of the previous year; output in industry 16 fell by 1.0% in Quarter 1 (Jan to Mar) 2015. This helps substantiate the recent construction figures, which show a 0.3% decline in output over the same period.