Index of Production, UK: June 2015

• Total production output is estimated to have increased by 0.7% between Quarter 1 (Jan to Mar) 2015 and Quarter 2 (Apr to June) 2015. Manufacturing, the largest component of production, is estimated to have decreased by 0.3% between these periods

• The largest contribution to the quarterly growth came from mining & quarrying, which increased by 6.3%, the highest since Quarter 4 (Oct to Dec) 1993

• Total production output is estimated to have increased by 1.5% in June 2015 compared with June 2014. There were increases in 3 of its 4 main sectors, with the largest contribution coming from mining & quarrying, which increased by 6.3%

• Manufacturing output increased by 0.5% in June 2015 compared with June 2014. The largest contribution to the increase came from the manufacture of transport equipment, which increased by 7.2%

• Total production output is estimated to have decreased by 0.4% in June 2015 compared with May 2015. There were decreases in 2 of the 4 main sectors, with the largest contribution coming from mining & quarrying, which decreased by 3.8%

• Manufacturing output increased by 0.2% in June 2015 compared with May 2015. The largest contribution to the increase came from the manufacture of basic metals & metal products, which increased by 4.9%

• In the 3 months to June 2015, production and manufacturing were 9.2% and 4.8% respectively below their figures reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008

• The preliminary estimate of GDP, published on 28 July 2015, contained an estimated increase of 1.0% for production in Quarter 2 (Apr to June) 2015. This release of data estimates that production increased by 0.7% between Quarter 1 (Jan to Mar) 2015 and Quarter 2 (Apr to June) 2015. The impact on the previously published GDP estimate for Quarter 2 (Apr to June) 2015 is less than 0.1 percentage points

This bulletin presents the monthly estimates of the Index of Production (IoP) for the United Kingdom production industries, June 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, 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 March 2013 to June 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; 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 publish MBS historical response rates back to 2010 (34 Kb Excel sheet).

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 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 (247.9 Kb Pdf). 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.

In April 2015 and May 2015 production output increased while manufacturing output contracted. In June 2015, these trends were reversed; production fell slightly while manufacturing output edged upwards, albeit to a lesser extent than the fall in the previous 2 months (for more information and analysis of the latest figures see the production and sectors supplementary analysis section of the bulletin).

Figure 2 shows that the UK manufacturing industry grew steadily between Quarter 1 (Jan to Mar) 2002 and Quarter 1 (Jan to Mar) 2008 at a compound growth rate of 0.1% per quarter. The economic downturn impacted the industry severely, with output contracting by 12.2% between the economy’s peak Quarter 1 (Jan to Mar) 2008 and the economy’s trough in Quarter 2 (Apr to June) 2009. Following the economic downturn in 2008 and 2009, 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.

Between Quarter 1 (Jan to Mar) 2014 and Quarter 1 (Jan to Mar) 2015 the production and manufacturing industries experienced steady growth. In Quarter 2 (Apr to June) 2015 production continued to grow while manufacturing contracted (for more information and analysis on the latest quarterly data see the production and sectors supplementary analysis section of the bulletin).

Headline GDP surpassed its pre-downturn peak in Quarter 3 (July to Sep) 2013, but services (which account for over 78% of total GDP) remained the only headline industry grouping to have achieved this. Output in the production and manufacturing industries still remained below levels experienced just before the onset of the downturn (according to the Gross Domestic Product Preliminary Estimate, Quarter 2 (Apr to June) 2015). This is consistent with the historical trend of services growing at a faster rate than production and manufacturing despite the fact that productivity in the production industries - manufacturing in particular - has, on average, grown at a faster rate than in the service industries since 1997 (more information can be found in Labour Productivity, Quarter 1 (Jan to Mar) 2015). The slower output growth and increased productivity, therefore, reflect the fallinenter link description hereg share of the labour force employed in manufacturing, which fell from 16.5% to 9.8% between 1997 and 2014 (Labour Market Statistics, July 2015, reference table EMP13 (154.5 Kb Excel sheet)).

Over the past year the manufacturing industry has experienced low price inflation, 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). Input prices paid by UK manufacturers fell by 12.6% in the year to June 2015, down from a fall of 12.3% in the year to May 2015. Output prices have also experienced deflation, falling by 1.5% on an annual basis, with crude oil impacting input prices. This feeds through to petroleum products, contributing to the decrease in output prices (this data came from the Producer Price Inflation bulletin).

International perspective

Globally, the performance of manufacturing output has varied across the 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 economic downturn in 2008 and 2009, all G7 nations’ manufacturing industries returned to growth. However, almost all members experienced subsequent declines in growth 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 was to varying degrees. Japan experienced the strongest growth on a quarterly basis (1.6%), France and Germany grew by 0.9% 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 1.2%.

For most G7 countries, manufacturing output remained below their respective pre-downturn levels experienced in 2007. Output in Italy, France, Japan and Canada remained 23.1%, 15.3%, 12.7% and 6.9% below the countries’ pre-downturn levels respectively. In Q1 2015 the UK was also below its pre-downturn level but to a lesser extent. However, in Quarter 3 (July to Sep) 2014, the USA did surpass its pre-downturn level and exceeded it by 1.2% in Quarter 1 (Jan to Mar) 2015, while Germany was also above its pre-downturn level and exceeded it by 1.2% in Quarter 1 (Jan to Mar) 2015, while Germany was also above its pre-downturn level, by 2.6% (more information can be found on the OECD website).

Figure 4 presents month-on-year percentage growth rates in 8 of the 13 UK manufacturing sub-industries for May 2015, alongside comparable growth rates achieved in Germany, France, Italy and the euro area. This shows that the UK experienced slower manufacturing growth at 1.0%, compared to total euro area manufacturing growth of 2.4%. Manufacturing output increased in France, Italy and Germany by 3.6%, 3.5% and 2.1%, respectively over the same period.

Figure 4 also shows that the UK’s comparable strength was currently concentrated in the manufacture of chemical products, which was offset by relative weakness in the manufacture of machinery & equipment not else classified, coke & refined petroleum, computer, electronic & optical products, as well as food, beverages & tobacco.

In this release, the earliest period open for revision was April 2015, in line with the National Accounts revisions policy.

The preliminary estimate of GDP, published on 28 July 2015, contained a forecasted increase of 1.0% for production in Quarter 2 (Apr to June) 2015. This release of data estimates that production increased by 0.7% between Quarter 1 (Jan to Mar) 2015 and Quarter 2 (Apr to June) 2015. The rise in IoP was lower than forecasted primarily due to revisions in 2 sectors. Firstly, the rise in the mining & quarrying sector was revised down from 7.8% to 6.3% following the receipt of actual data to replace estimates. Secondly, the rise in the water, waste & sewage management sector was lower than forecasted within the GDP preliminary estimate, as a result of further information from data sources (see IoP revisions for further details). Due to the weight of the production industries within the economy, the impact on the recently published GDP preliminary estimate was less than 0.1 percentage points.

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 June 2015 will be published on 14 August 2015 and services output for the same period on 28 August 2015.

Total production

As seen in Table 3, total production increased by 0.7% in Quarter 2 (Apr to June) 2015 compared with Quarter 1 (Jan to Mar) 2015, the largest quarterly increase since Quarter 3 (July to Sep) 2013. This increase was lower than the estimated increase of 1.0% contained within the recent preliminary estimate of GDP. This was due to downward revisions to mining & quarrying and water supply, sewerage & waste management, caused by the receipt of new and revised data to replace early estimates. The quarterly increase in total production reflected increases of 6.3% in mining & quarrying output and 3.0% in water supply, sewerage & waste management. Partially offsetting these increases were decreases in manufacturing (the largest component in production) of 0.3% and in electricity, gas, steam & air conditioning output of 3.1%.

Total production output in June 2015 increased by 1.5% compared with June 2014 (Table 3). This increase reflected rises in 3 of its 4 main sectors, with mining & quarrying having the largest contribution, increasing by 6.3% and contributing 0.9 percentage points to total production. There were also increases in water supply, sewerage & waste management of 4.5% and in manufacturing of 0.5%. Partially offsetting these increases was a decrease in electricity, gas, steam & air conditioning output of 2.0%.

Between May 2015 and June 2015, total production decreased by 0.4% (Table 3). There were decreases in 2 of its 4 main sectors. The downward contributions came from mining & quarrying, which decreased by 3.8% and contributed 0.6 percentage points and electricity, gas, steam & air conditioning output, which decreased by 0.3% and had a negligible contribution to total production. Partially offsetting the decreases were increases in manufacturing, which increased by 0.2% and contributed 0.1 percentage points to total production and water supply, sewerage & waste management output, which increased by 0.5% and had a negligible contribution to total production (Figure 7).

Manufacturing

Manufacturing decreased by 0.3% in Quarter 2 (Apr to June) 2015 compared with Quarter 1 (Jan to Mar) 2015, the same as the estimate contained within the latest GDP preliminary release. This is the first quarterly decrease since Quarter 1 (Jan to Mar) 2013, when it decreased by 0.3%. Output decreased in 9 of its 13 sub-sectors. As seen in Figure 5, the sub-sector with the largest downward contribution was the manufacture of food products, beverages & tobacco, which decreased by 1.7% and contributed 0.2 percentage points to total production. Output decreased in 8 of 11 industries within this sub-sector. The main contributor to this decrease was the manufacture of bakery & farinaceous products, which decreased by 5.6% and contributed 0.1 percentage points to total production. This was the third consecutive quarterly decrease since Quarter 3 (July to Sept) 2014.

In contrast, the manufacturing sub-sector with the largest quarterly upward contribution to total production was the manufacture of transport equipment, which increased by 2.9% and contributed 0.4 percentage points to total production. This was the 3rd consecutive quarterly increase, in line with the strength seen in previous quarters. The main contributor to the increase was the manufacture of air, spacecraft & related machinery, which increased by 6.4% and contributed 0.3 percentage points to total production. Anecdotal evidence suggested that this strength was contracts-related.

Manufacturing output increased by 0.5% between June 2014 and June 2015 and contributed 0.4 percentage points to total production growth. Output increased in 5 of the 13 manufacturing sub-sectors compared with a year ago (Figure 6 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 7.2% and contributed 0.9 percentage points to total production. The main contributor within this sub-sector was the manufacture of air, spacecraft & related machinery, which increased by 19.1% and contributed 0.9 percentage points to total production. This was this industry’s 10th consecutive increase compared with a year ago.

In contrast, the manufacturing sub-sector with the largest downward contribution to total production was the manufacture of machinery & equipment not elsewhere classified, which decreased by 14.7% and contributed 0.8 percentage points to total production.

Manufacturing output increased by 0.2% between May 2015 and June 2015 and contributed 0.1 percentage points to total production. There were increases in 7 of the 13 manufacturing sub-sectors (Figure 7). The manufacturing sub-sector with the largest contribution to the increase in total production was the manufacture of basic metals & metal products, which increased by 4.9% and contributed 0.4 percentage points to total production, having had a similar decrease in the previous month. The largest contributor to this increase was the manufacture of weapons & ammunition, which increased by 31.3% and contributed 0.1 percentage points to total production, having decreased by 22.0% in the previous month. Anecdotal evidence suggested the strength is widespread and mainly contract-related.

In contrast to the above increases, the manufacturing sub-sector with the largest downward contribution to total production was the manufacture of pharmaceutical products & pharmaceutical preparations, which decreased by 10.7% and contributed 0.6 percentage points to total production, having increased by 8.6% the previous month.

Mining and quarrying

Mining & quarrying output increased by 6.3% in Quarter 2 (Apr to June) 2015 compared with Quarter 1 (Jan to Mar) 2015 and contributed 0.9 percentage points to total production. This increase was less than the forecast of 7.8% contained within the latest preliminary estimate of GDP, due to actual data replacing estimates. The main contributor to the increase in mining & quarrying was the extraction of crude petroleum & natural gas, which increased by 10.7% and contributed 1.1 percentage points to total production (Figure 5), having decreased by 0.8% in the previous quarter. Anecdotal evidence suggested the quarterly increase in the extraction of crude petroleum & natural gas was mainly due to increases in crude oil production (which was led by offshore pipelines and offshore loaders); NGL and to some extent gas production. Evidence from the Department of Energy and Climate Change (DECC) suggested the recent tax changes announced in the March 2015 Budget have been a contributing factor to the quarterly rise (Figure 8).

Mining & quarrying output increased by 6.3% between June 2014 and June 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 10.3% and contributed 1.0 percentage points to total production (Figure 6). This was due to increases in crude oil production compared with last year when planned maintenance in a number of terminals hampered production.

Mining & quarrying output decreased by 3.8% in June 2015 compared with May 2015 and contributed 0.6 percentage points to total production. This is the first decrease since February 2015, when it decreased by 2.5%. The sub-sector with the largest downward contribution was the extraction of crude petroleum & natural gas, which decreased by 5.8% and contributed 0.7 percentage points to total production (Figure 7). This followed an increase of 7.0% in the previous month. Evidence suggests that the decrease observed within this sub-sector was mainly attributed to a slowdown in crude oil, NGL and gas production following a higher than usual strength in production, observed over previous months.

Electricity, gas, steam & air conditioning

Electricity, gas, steam & air conditioning output decreased by 3.1% in Quarter 2 (Apr to June) 2015 compared with Quarter 1 (Jan to Mar) 2015 and contributed 0.2 percentage points to total production. This is similar to the forecasted decrease of 2.9% contained within the GDP preliminary estimate and follows an increase of 2.8% in the previous quarter. The decrease was reflected in both of its sub-sectors, with the largest contribution coming from electric power generation, transmission & distribution, which decreased by 2.8% and contributed 0.1 percentage points to total production.

Electricity, gas, steam & air conditioning output decreased by 2.0% in June 2015 compared with June 2014 and contributed 0.1 percentage points to total production (Figure 6). This reflected a decrease in output in 1 of its 2 sub-sectors:- electric power generation, transmission & distribution, which decreased by 3.0% and contributed 0.1 percentage points to total production. Evidence suggested that the decrease was mainly attributed to energy efficiencies and, to a lesser extent, to increased micro-energy generation.

Electricity, gas, steam & air conditioning output decreased by 0.3% in June 2015 compared with May 2015 and had a negligible contribution to total production (Figure 7). This followed an increase of 1.6% in the previous month. The decrease was in 1 of its 2 sub-sectors:- electric power generation, transmission & distribution, which decreased by 0.5% and had a negligible contribution 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 3.0% in Quarter 2 (Apr to June) 2015 compared with Quarter 1 (Jan to Mar) 2015, the third consecutive quarterly increase since Quarter 3 (July to Sep) 2014. This rise is lower than the forecasted rise of 4.8% contained within the GDP preliminary estimate, as a result of further information from data sources (see IoP revisions for further details). This increase reflected increases in 3 of its 4 sub-sectors. The largest contributor to the increase was sewerage, which increased by 5.7% and contributed 0.1 percentage points to total production (Figure 5), having decreased by 0.7% in the previous quarter.

Water supply, sewerage & waste management output increased by 4.5% in June 2015 compared with June 2014 and contributed 0.4 percentage points to total production. This increase reflected a rise in 3 of its 4 sub-sectors’ output (Figure 6), with the largest contribution coming from sewerage, which increased by 10.4% and contributed 0.2 percentage points to total production.

Water supply, sewerage & waste management output increased by 0.5% between May 2015 and June 2015 and had a negligible contribution to total production. This was the sixth consecutive increase since December 2014. This increase reflected a rise in 1 of its 4 sub-sectors (Figure 7):- sewerage, which increased by 2.7% and contributed 0.1 percentage points to total production.

Revisions to IoP

Revisions to the Index of Production follow the National Accounts Revisions policy (41.6 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 one indication of the reliability of this important 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 was April 2015. There were no revisions to IoP month-on-month growth rates greater than 0.1 percentage points.

In May 2015, there was a downward revision of 0.1 percentage points. The month-on-month growth rate was revised from a rise of 0.4% to 0.3%. This was attributed to a revision to crude oil & gas production and water, sewage & waste management as a result of late responses and further information about data from suppliers.

Further details on the revisions to IoP components can be found in the IoP5R tables, located within the data section of this release.

Industry CF covers the “Manufacture of basic pharmaceutical products & pharmaceutical preparations” in the Index of Production data and accounts for around 8.6% of manufacturing output. According to the Standard Industrial Classification (SIC07), industry CF includes the manufacture of basic pharmaceutical products (division 21.1) which covers the manufacture of medicinal active substances to be used for their pharmacological properties in the manufacture of medicaments, processing of blood, manufacture of chemically-pure sugars, processing of glands and manufacture of extracts of glands. The industry also includes the manufacture of pharmaceutical preparations (division 21.2), which consists of manufacture of medicaments, chemical contraceptive products, medical diagnostic preparations, radioactive in-vivo diagnostic substances, biotech pharmaceuticals and botanical products.

This industry CF experienced strong growth in volume terms in the decade prior to the downturn as opposed to the more moderate growth seen across total manufacturing. The level of output in the industry peaked in Quarter 2 (Apr to June) 2009, following a period of fairly consistent growth between 1997 and 2009 at a compound growth rate of 5.0% per annum. During the economic downturn, that lasted from Quarter 1 (Jan to Mar) 2008 until Quarter 2 (Apr to June) 2009, the pharmaceutical industry grew by 13.6% while the manufacturing industry contracted by 12.2 %. However following this, the industry’s output had a distinctly different experience, contracting by 33.0 % between Quarter 2 (Apr to June) 2009 and Quarter 2 (Apr to June) 2015 while manufacturing grew by 8.4% over the same period.

According to the annual business survey (ABS) this industry generated £15.0 billion of total turnover in 2013, which represented 2.9% of the total turnover of the manufacturing industry (£9.2 billion of the total turnover originated in the manufacture of pharmaceutical preparations section of the industry, with the remainder coming from the manufacture of basic pharmaceutical products). The “turnover and orders in production and services industries” (TOPSI) publication separates total turnover into export turnover and home turnover. Export turnover experienced strong growth between 1999 and 2010, increasing at a compound growth rate of 7.6% per annum while the growth in home turnover was more subdued over the same period, rising at a compound growth rate of 3.5% per annum. Export turnover reached its peak in 2009 which coincided with the peak in industry 21’s output. However since 2010, export turnover experienced a continuous sharp decline and in 2014 it was 30.8% below its peak.