Index of Production, UK: December 2017

• In the three months to December 2017, the Index of Production was estimated to have increased by 0.5% compared with the three months to September 2017, due to a rise of 1.3% in manufacturing; this was partially offset by a decrease of 4.7% in mining and quarrying, caused mainly by the shut-down of the Forties oil pipeline for a large part of December 2017.

• Within manufacturing, 9 of the 13 manufacturing sub-sectors experienced growth; the largest contribution to quarterly growth came from basic metals and metal products, which increased by 5.7%.

• Total production output increased by 2.3% for the three months to December 2017 compared with the same three months to December 2016; manufacturing provided the largest upward contribution with an increase of 3.4%.

• For the calendar year 2017, total production output increased by 2.1% compared with 2016, with manufacturing providing the largest upward contribution, increasing by 2.8%.

• In December 2017, total production was estimated to have decreased by 1.3% compared with November 2017; mining and quarrying provided the only downward contribution, falling by 19.1% as a result of the shut-down of the Forties oil pipeline for a large part of December.

• In this release, the Index of Production estimate for Quarter 4 (Oct to Dec) 2017 was revised down by 0.1% from the increase of 0.6% published in the Gross domestic product, preliminary estimate: October to December 2017; When combined with the publication of the Index of Construction today, the headline GDP growth rate has not been impacted to 1 decimal place.

The Index of Production (IoP) is an important economic indicator and one of the short-term measures of economic activity in the UK. It is used in the compilation of gross domestic product (GDP); the production industries’ weight accounts for 14.0% of the output approach to the measurement of GDP.

The IoP measures the UK output in the mining and quarrying; manufacturing; energy supply; and water supply and waste management industries. The IoP estimates are based mainly on the Monthly Business Survey (MBS) of approximately 6,000 businesses. In addition, from the November 2017 bulletin published in January 2018, we have also included VAT data across 64 production industries for small and medium-sized businesses. These have been used to supplement data from the MBS from January 2016 to June 2017. For the mining and quarrying, and energy supply sectors, and two manufacturing industries namely coke and refined petroleum, and basic iron and steel, we receive volume data from the Department for Business, Energy and Industrial Strategy (BEIS) and the International Steel Statistics Bureau (ISSB) respectively. Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data.

The current price non-seasonally adjusted estimates of industries collected by the MBS can be found in the MBS production industries dataset, which was published alongside this release. Note that the MBS production industries dataset does not contain data from VAT returns, which have been included in the IoP.

The MBS production industries dataset produces the proportion of turnover from exports by industry and level of turnover and exports (£ millions). However, this is not always comparable with UK trade statistics, for a number of reasons. These include, but are not limited to:

• different data sources – MBS are based on a survey of businesses; UK trade in goods uses administrative data collected by HM Revenue and Customs (HMRC)
• different concepts being measured – MBS reports the value of exports as a proportion of the industry's turnover; the UK trade in goods data report the change in ownership between the UK and other countries
• time lag – there can be time lags between the sale of a product reported in MBS and the movements of that product reported by UK trade

Further information on UK trade and how data on it are compiled can be found in the “Things you need to know about this release” section of the UK trade release.

This release was open to revision from January 2017. This is in line with the updated National Accounts Revisions Policy.

Revisions can be made for a variety of reasons; the most common include:

• late responses to surveys and administrative sources, or changes to original returns
• HMRC VAT returns replacing MBS data for small- and medium-sized businesses when VAT estimates become available every quarter
• forecasts being replaced by actual data
• revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually

Care should be taken when using the month-on-month growth rates as data can often be volatile; longer-term growth rates and examination of the time series allow for better interpretation of the statistics.

Summary information can be found in the Quality and Methodology Information report.

Figures 1 and 2 show that both the Index of Production (IoP) and Index of Manufacturing (IoM) followed a broadly upward trend following the economic downturn. Growth was more pronounced from the beginning of 2010, as the economy recovered, before a downturn during 2012. Since then, both production and manufacturing output have risen but remain below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008, by 5.2% and 0.5% respectively in the three months to December 2017.

Table 1 shows the growth rates and contributions for the IoP and main sectors for December 2017. The three months-on-previous three months estimate of total production rose by 0.5% in December 2017, the only upward contribution came from manufacturing rising by 1.3%. This was offset partially by a fall in mining and quarrying of 4.7% due to the shut-down of the Forties oil pipeline for a large part of December 2017.

The monthly estimate of total production decreased by 1.3%. Mining and quarrying was the only main sector to provide a downward contribution, falling by 19.1%.

In this release, the Index of Production estimate for Quarter 4 (Oct to Dec) 2017 was revised down by 0.1 percentage points from the increase of 0.6% published in the Gross domestic product, preliminary estimate: October to December 2017. The largest downward contribution to the revision came from electricity, gas, steam and air conditioning, as the Department for Business, Energy and Industrial Strategy revised these data in line with their latest publication of Energy Trends.

In the three months‐on‐previous three months to December 2017, total production was estimated to have increased by 0.5% (Table 2); this followed an increase of 1.4% in the three months to September 2017. This was the sixth consecutive increase since the three months to July 2017.

Manufacturing provided the largest upward contribution to total production, rising by 1.3%, following an increase of 1.4% in the three months to September 2017. Within manufacturing, 9 of the 13 sub-sectors experienced growth over this period.

Basic metals and metal products provided the largest upward contribution, rising by 5.7%, its strongest growth since March 1998 when it rose by 5.9%. Within this sub-sector, the fabrication of metal products other than weapons provided the largest contribution, increasing by 5.0%, this was the strongest growth since the three months to November 2013. Increases in export turnover of 7.4% and domestic turnover of 0.7% were reported by this industry; this was published today in the Monthly Business Survey (MBS) production industries dataset. However, it is important to note that this dataset is based on current prices and does not reflect the impact of price changes, and is not seasonally adjusted.

Partially offsetting the strength from manufacturing was the mining and quarrying sector, which decreased by 4.7%, due mainly to weakness in the oil and gas extraction sub-industry during December 2017 as a result of the Forties oil pipeline shut-down.

Total production increased by 2.3% in the three months to December 2017, compared with the same three months to December 2016 (Table 3). This is the 22nd consecutive increase since March 2016.

The largest upward contribution came from manufacturing, which increased by 3.4%, due to broad-based strength, with 9 of the 13 sub-sectors increasing. Transport equipment provided the largest upward contribution, increasing by 6.6%, with three of its four industries increasing. The largest upward contribution came from the manufacture of aircraft, spacecraft and related machinery, while motor vehicles, trailers and semi-trailers fell by 0.3%.

The annual estimate of total production output for 2017 increased by 2.1%, compared with 2016 (Table 4). This is the fourth consecutive annual rise and the strongest growth since 2010, when it rose by 3.2%. There were rises in two of the four main sectors.

Manufacturing provided the largest contribution to the annual growth, rising by 2.8%, due to broad-based strength across the sector, with 10 of the 13 sub-sectors increasing. Transport equipment provided the largest contribution, increasing by 5.1%; within this sub-sector, all of the four sub-industries increased, with the largest increase coming from the manufacture of aircraft, spacecraft and related machinery, which increased by 8.0%. In contrast, motor vehicles, trailers and semi-trailers increased by 0.2% with a negligible contribution to total production.

Other manufacturing and repair increased by 6.2%, recording its strongest annual growth since 1999. This sub-sector is connected to the transport equipment sub-sector as industries within other manufacturing and repair include the repair and maintenance of ships, boats, aircraft and spacecraft. The largest contribution within other manufacturing and repair came from repair and installation. Evidence collected from the Monthly Business Survey suggests that large-scale transport projects and contracts were a contributing factor to the increased growth.

Following a slow start during Quarter 1 (Jan to Mar) 2017 for manufacturing output, the sector has performed strongly, as evidenced by eight consecutive periods of monthly growth since April 2017 and six consecutive periods of three months-on-previous three months growth. Furthermore, increased export and domestic annual turnover growth, of 9.3% and 3.3% respectively, was reported and published today in the Monthly Business Survey (MBS) production industries dataset. The export proportion of total manufacturing turnover has also increased from 32.0% in 2016 to 33.2% in 2017.

We have previously considered the impact of sterling depreciation in an article published in September 2017. It is important to note that the MBS production industries dataset is based on current prices and does not reflect the impact of price changes and is not seasonally adjusted.

The monthly estimate of total production decreased by 1.3% in December 2017 (Table 5). This was the first fall since March 2017, when output fell by 0.7% and this was the largest fall since September 2012, when total production fell by 3.5%.

The only downward contribution came from mining and quarrying, which decreased by 19.1%, following the shut-down of the Forties oil pipeline for a large part of December 2017. The mining and quarrying sector was previously weaker in September 2012, when it fell by 21.0% due to maintenance at a number of oil and gas extraction sites.

Despite the overall weakness, there were rises in three of the four main sectors. Manufacturing output was estimated to have increased by 0.3%, the eighth consecutive monthly rise, due mainly to a rise of 4.2% in basic metals and metal products. Manufacturing has not recorded eight consecutive monthly growths since the periods June 1987 to January 1988.

We published the Short-term economic indicators commentary alongside this release (on 9 February 2018), presenting new information on economic conditions in December 2017, with data available for output in production, construction and the trade balance.

We published the Monthly economic commentary: January 2018 on 26 January 2018, presenting analysis of the latest estimate of gross domestic product and economic commentary for prices, short-term indicators and labour market indicators to complement theme day economic commentary.

The corresponding price indices used to deflate the Index of Production (IoP) are published in the monthly publication of UK producer price inflation. Product sales by manufacturers are published on an annual basis in UK manufacturers’ sales by product (Prodcom) statistical bulletins; estimates are in current prices, unlike the chained volume measures published in the IoP release.

The data published by the Department for Business, Energy and Industrial Strategy (BEIS) in Energy trends are used to measure the mining and quarrying, electricity and gas, and the manufacture of coke and refined petroleum products sectors within this release.

The IoP follows the Eurostat short-term statistics (STS) regulation for measuring output in production. The latest release of industrial production and output in manufacturing are available from Eurostat and are updated monthly. It should be noted that an accurate comparison cannot be made between our publication and the Eurostat publication without re-indexing the data to the same base year, as Eurostat data are calculated on a 2010 equals 100 basis, while UK data are calculated on a 2015 equals 100 basis.

Outside the EU, the US Census Bureau releases Manufacturing and Trade Inventories and Sales reports. Accurate comparisons cannot be made between our publication and the US Census Bureau release, as the UK data are calculated at chained volume indices, which take into account price changes, while the US publication is not adjusted for price changes.

The majority of data used to compile the manufacturing sector and therefore the Index of Production (IoP), are collected via the Monthly Business Survey (MBS). Since the Index of Production: November 2017 publication, the IoP also contains Value Added Tax (VAT) returns for 76,390 businesses across 64 production industries. The MBS samples around 6,000 businesses every month, this is now supplemented with VAT returns.

The data collected on the MBS are turnover excluding VAT and exports for some applicable industries. The data collected on the VAT returns are also turnover excluding VAT. These data are then deflated using Producer Price Indices (PPI). Within the manufacturing sector we also receive direct volume data from the Department for Business, Energy and Industrial Strategy (BEIS) for fuel industries and the International Steel Statistics Bureau for steel industries.

The mining and quarrying sector is comprised mainly of data from BEIS, including volume of oil and gas extraction and coal extraction. The data used to produce the energy sector are also from BEIS and include energy and gas supply output. A comprehensive list of the IoP source data can be found in the Gross domestic product (GDP(O)) source catalogue.

Within the suite of datasets published monthly alongside this release, you will find:

• Output of the production industries (IOP5) publication tables
• Revisions to output of the production industries (IOP5R)
• Monthly Business Survey response rates for production industries for this publication
• Revision triangle – monitors the size of monthly and three-monthly revisions
• Index of Production weights 2015 equals 100
• Index of Production and sectors to four decimal places
• Monthly Business Survey (MBS) turnover in production industries
• Export proportions for manufacturing industries

The Index of Production Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data
• uses and users of the data
• how the output was created
• the quality of the output including the accuracy of the data

At present the Quality and Methodology Information report is being updated to reflect the inclusion of VAT data and will be published later this year.