Index of Production, UK: February 2018

• In the three months to February 2018, the Index of Production decreased by 0.1% compared with the three months to November 2017, due to a fall of 8.6% in mining and quarrying, caused mainly by the shutdown of the Forties oil pipeline within December 2017.

• In the three months to February 2018, manufacturing provided the largest upward contribution to total production with an increase of 0.6%.

• In February 2018, total production was estimated to have increased by 0.1% compared with January 2018; energy supply provided the largest upward contribution, increasing by 3.7%.

• In February 2018 compared with January 2018, manufacturing declined by 0.2%, the first time output has fallen since March 2017; and in February 2018 compared with February 2017, manufacturing increased by 2.5%.

• Energy supply increased by 3.7% in February 2018 compared with January 2018 due to below average temperature. Despite snowfall in some areas of the UK during February 2018, there was no survey evidence to suggest that the snowfall had any negative impact.

• Data published in this release is consistent with the release of Quarterly National Accounts: October to December 2017 published on 29 March 2018.

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 September 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 is open for 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.

Data published in this release is consistent with the release of Quarterly national accounts: October to December 2017 published on 29 March 2018. The Quarterly national accounts incorporate the latest standard revisions as noted in section 2 of this bulletin and updated Value Added Tax (VAT) data for January 2017 to June 2017 and new VAT data for July 2017 to September 2017. For further information as to the use of VAT turnover within the national accounts please see VAT turnover data in National Accounts: background and methodology (published 19 March 2018).

Summary information can be found in the Index of Production 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 5.5% and 0.7% respectively in the three months to February 2018.

Table 1 shows the growth rates and contributions for the IoP and main sectors for February 2018.

The three months-on-previous three months estimate of total production fell by 0.1% in February 2018, the first fall since May 2017. The largest downward contribution came from mining and quarrying, which fell by 8.6%. This was offset partially by a rise in manufacturing of 0.6%.

The monthly estimate of total production increased by 0.1%. Energy supply provided the largest upward contribution, rising by 3.7% due mainly to the lower than average temperature during February 2018. In contrast, manufacturing fell by 0.2%, with 7 of 13 sub-sectors decreasing. This is the first decrease in output since March 2017 and continues the overall slow-down in this sector over recent months.

In the three months‐on‐previous three months to February 2018, total production was estimated to have decreased by 0.1% (Table 2) and follows an increase of 0.3% in the three months to January 2018. This is the first fall since the three months to May 2017 when it fell by 1.1%.

Following a decrease of 6.8% in the three months to January 2018, mining and quarrying provided the largest downward contribution to total production in the three months to February 2018, falling by 8.6%. This was the largest fall since the three months to December 2012, when it decreased by 9.1%. The weakness is due mainly to the shutdown of the Forties oil pipeline within December 2017.

Partially offsetting the overall fall in total production output is the manufacturing sector which increased by 0.6%, this is the weakest growth since the three months to July 2017, when it also increased by 0.6% and points to a slowdown in manufacturing output following recent three-monthly strength during the latter part of 2017.

It should also be noted that overall strength is not broad-based, with only 7 of the 13 manufacturing sub-sectors experiencing growth over the three months to February 2018. There were notable rises in basic metals and metal products (2.9%), machinery and equipment not elsewhere classified (4.3%) and transport equipment (1.8%) which continues the recent three-monthly strength within these sub-sectors during the latter part of 2017.

Total production increased by 1.0% in the three months to February 2018, compared with the same three months to February 2017 (Table 3).

The largest upward contribution came from manufacturing, which increased by 1.9%. Within this sector, basic metals and metal products provided the largest upward contribution, increasing by 6.1%, continuing the recent strength in this sub-sector since April 2017. Increases in total turnover were also reported for the three months to February 2018 compared with the same three months to February 2017 for all industries within this sub-sector; this was published today (11 April 2018) 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.

Machinery and equipment not elsewhere classified; transport equipment; and other manufacturing and repair provide supporting strength but are partially offset by a fall of 4.3% in the pharmaceuticals sub-sector.

The mining and quarrying sector fell by 3.8%, impacted by the shutdown of the Forties oil pipeline within December 2017.

The monthly estimate of total production increased by 0.1% in February 2018 (Table 4). This follows an increase of 1.3% in January 2018.

The largest contribution came from energy supply, which increased by 3.7% and follows a decrease of 2.6% in January 2018. Within this sector, both sub-industries provide almost equal contributions to growth, with gas supply rising by 5.7% and electricity generation rising by 2.6%. According to the Met Office, the provisional UK mean temperature was 2.4 degrees Celsius, which is 1.3 degrees Celsius below the 1981 to 2010 long-term average. The below-average temperature had a positive impact on energy supply in February 2018.

In contrast and largely offsetting growth from the energy supply and water and waste sectors, were falls in manufacturing and mining and quarrying.

Mining and quarrying output fell by 2.7% due to two of the six refineries undergoing planned maintenance which saw significantly less production/output of petroleum product, as well as the closure of the Forties oil pipeline for one day on the 7 February 2018.

Manufacturing output decreased by 0.2%, the first fall in this sector since March 2017, when it fell by 0.4%. Within this sector 7 of the 13 sub-sectors decreased on the month; led by machinery and equipment not elsewhere classified, which fell by 3.9%, the first fall since June 2017, when it decreased by 4.9%. It should be noted that the growth in this sector of 0.1% during January 2018 and published last month, has been revised this month to 0.0%, further supporting evidence provided in the January 2018 bulletin of a slow-down in manufacturing output.

In contrast, pharmaceuticals rose by 3.3% and basic metals and metal products rose by 1.7%. Within basic metals and metal products the weapons and ammunition industry rose by 28.6%, its strongest growth since August 2014, when it increased by 33.4%. Strong contracts contributed to the growth within this industry.

Despite snowfall in some areas of the UK during February 2018, there was no responder led evidence via the Monthly Business Survey (MBS) survey to suggest that the snowfall had any negative impact.

We published the Short-term economic indicators commentary alongside this release (on 11 April 2018), presenting new information on economic conditions in February 2018, with data available for output in production, construction and the trade balance.

We published the Monthly economic commentary: March 2018 on 29 March 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. Eurostat and 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 takes 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 (XLS, 715KB).

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.