Index of Production, UK: June 2017

• In the 3 months to June 2017, the Index of Production was estimated to have decreased by 0.4% compared with the 3 months to March 2017, due mainly to a fall of 0.6% in manufacturing.

• The largest contribution to the fall in manufacturing in the 3 months to June 2017 came from transport equipment, which fell by 2.2%, along with smaller downward contributions from a range of other industries.

• In June 2017, total production was estimated to have increased by 0.5% compared with May 2017, due mainly to a rise of 4.1% in mining and quarrying as a result of higher oil and gas production.

• Manufacturing monthly growth was flat in June 2017; the largest downward contribution came from transport equipment, which fell by 3.6%, which was partially offset by an increase of 4.0% in other manufacturing and repair.

• Total production output for June 2017 compared with June 2016 increased by 0.3%, with manufacturing providing the largest upward contribution, increasing by 0.6%; energy supply partially offset the increase in total production, decreasing by 4.6% due largely to warmer temperatures.

• In this release, the Index of Production estimate for Quarter 2 (April to June) 2017 was unrevised from the decrease of 0.4% published in the Gross domestic product, preliminary estimate: Apr to June 2017.

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 14.6% 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 mainly based on the Monthly Business Survey (MBS) of approximately 6,000 businesses. 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 today’s (10 August 2017) publication of TOPSI: Turnover in production and services industries.

As part of the Short-term Economic Indicators theme day, TOPSI 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 – IoP and TOPSI 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 – IoP 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 IoP 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” section of the UK trade release.

This release has a revisions period back to April 2017. 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
• forecasts being replaced by actual data
• revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually

This revisions period is consistent with the National Accounts Revisions Policy.

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 well below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (January to March) 2008, by 7.8% and 4.4% respectively in the 3 months to June 2017.

Table 1 shows the growth rates and contributions for the IoP and main sectors for June 2017. The monthly estimate of total production rose by 0.5%. There were rises in two of the four main sectors, with mining and quarrying providing the largest upward contribution, increasing by 4.1%, while manufacturing remained flat at 0.0%.

The 3 months-on-previous 3 months estimate of total production fell by 0.4% in June 2017, with falls in two of the four main sectors. Manufacturing provided the largest downward contribution, falling by 0.6%.

In the 3 months‐on‐previous 3 months to June 2017, total production was estimated to have contracted by 0.4% (Table 2) and follows an increase of 0.1% in the 3 months to March 2017.

Manufacturing was responsible for the downward pressure to total production, falling by 0.6% in the 3 months to June 2017. The decrease was due mainly to transport equipment, which fell by 2.2% and is the weakest growth since February 2014, when it fell by 2.7%. Within this sub-sector, motor vehicles, trailers and semi-trailers fell by 5.8%, the largest fall since the 3 months to April 2009, when it fell by 9.2%. In the 3 months to March 2017, the motor vehicles index was at a record level at 125.6 (Figure 3) and experienced growth of 3.7%.

The monthly estimate of total production increased by 0.5% in June 2017 (Table 3). There were rises in two of the four main sectors.

Mining and quarrying provided the largest upward contribution, increasing by 4.1% following an increase of 0.3% in the previous month. Within this sector, oil and gas extraction provided the largest upward contribution, rising by 5.0% due mainly to higher oil production and gas production following an absence of maintenance that usually takes place in June. In addition, use of the re-developed Schiehallion oil field and use of the new Kraken oil field are contributing to the increase in oil production. Both are expected to increase UK Continental Shelf (UKCS) production over the longer-term.

The decrease of 0.9% in energy supply is due mainly to gas supply, which fell by 2.7%. The Department for Business, Energy and Industrial Strategy (BEIS) have indicated that the fall in output is linked to the rise in temperature, with June 2017 the fifth equal warmest June since 1910 and 1.5% degrees Celsius above the 1981 to 2010 long-term average (according to the Met Office). Over the longer-term, demand in gas has increased as a result of increased gas use instead of coal for the purpose of generating electricity (BEIS Energy Trends, UK energy statistics).

Manufacturing growth in June 2017 was flat (0.0%) compared with May 2017, with 6 of the 13 sub-sectors providing an increase. Other manufacturing and repair provided the largest upward contribution, rising by 4.0%, its largest rise since November 2015 when it rose by 6.0%. Transport equipment provided the largest downward contribution, falling by 3.6% due mainly to a 6.7% fall in the manufacture of motor vehicles, trailers and semi-trailers. This is the largest fall since December 2013, when it fell by 10.7%. A decline in car production was also reported by the Society of Motor Manufacturers and Traders (SMMT).

Total production increased by 0.3% in June 2017 compared with June 2016; three of the four main sectors provided upwards contributions (Table 4).

The largest upward contribution came from manufacturing, which increased by 0.6%. Despite the largest downward contribution coming from transport equipment, which fell by 3.2%, this was more than offset by broad-based increases across 9 of the 13 manufacturing sub-sectors.

Chemical products provided the largest upward pressure, rising by 6.9% due mainly to an increase of 31.2% within industrial gases, inorganics and fertilisers. As reported by this sub-industry in the Monthly Business Survey, published in Turnover in production and services industries, there were increased domestic and export sales of 40.9% and 42.6% respectively, with a number of businesses reporting increased sales over this period.

Energy supply partially offset the overall increase in production output, decreasing by 4.6%. The sub-industry providing the largest downwards contribution was electricity generation and supply, which fell by 4.4% due to a fall in outputs and warmer weather in June 2017, 14.5 degrees Celsius compared with June 2016, 13.9 degrees Celsius according to the Met Office.

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 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 2013 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 export proportions for manufacturing industries are now published with Turnover in production and services industries and will continue to be in future publications.

On 31 August 2017, we aim to publish further analysis on the impact of sterling devaluation on prices and turnover in the manufacturing sector since June 2016.

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

We launched a public consultation, which closes on 14 September 2017, to seek views on an alternative model for our publications of gross domestic product (GDP) estimates. In summary, this model would give two balanced estimates of quarterly GDP using data from the output, income and expenditure approaches around 6 and 13 weeks after the end of the preceding quarter. The Index of Services publication date would be moved 2 weeks earlier and become part of the short-tTerm economic indicator theme day, enabling a monthly GDP estimate.

VAT turnover implementation into National Accounts: June Update was published on 1 June 2017. This update explains that the first use of VAT in the national accounts will be in the Quarterly National Accounts (July to Sept) 2017 and the Index of Services: Oct 2017 bulletins, which are both due for publication on 22 December 2017.

In the next release of Index of Production (IoP), the Monthly Business Survey, which underpins the current prices data feeding into this release, will contain new imputation methodology for survey non-response back to January 2016. For respondents that do not return data in a month, the value is imputed using a ratio imputation method called the mean of ratios.

The new method, referred to as the ratio of means is more stable and reduces imputation bias. We will publish an article detailing the impact with the next IoP release to be published 8 September 2017.

In our next release, IoP July 2017, no previous periods will be open for revision. This is in line with the standard National Accounts Revisions Policy. The IoP: August 2017 release will include methodological updates and revisions back to 1997 and is our Blue Book consistent publication.

The majority of data used to compile the manufacturing sector, and thus the Index of Production (IoP), is collected via the Monthly Business Survey (MBS). The MBS samples around 6,000 businesses every month. The data collected are turnover excluding Value Added Tax (VAT) and exports for some applicable industries. This data is then deflated using Producer Price Indices (PPI). Within the manufacturing sector we also receive direct volume data from BEIS for fuel industries and the International Steel Statistics Bureau for steel industries.

The mining and quarrying sector is comprised mainly of data from Department for Business, Energy and Industrial Strategy (BEIS), including volume of oil and gas extraction and coal extraction. The data used to produce the energy sector is also from BEIS and includes energy and gas supply output. A comprehensive list of the IoP source data can be found in the 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 3-monthly revisions
• Index of Production weights 2013 equals 100
• Index of Production and Sectors to 4 decimal places

The TOPSI: production and services turnover is published alongside this release, providing current price estimates for industries collected by the MBS.

The Index of Production Quality and Methodology Information document 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