Index of Production, UK: June 2018

• In Quarter 2 (Apr to June) 2018, the Index of Production fell by 0.8% compared with Quarter 1 (Jan to Mar) 2018, due to a fall of 0.9% in manufacturing and a fall in energy supply of 2.7%.

• In June 2018, total production was estimated to have increased by 0.4% compared with May 2018, due to increases in manufacturing of 0.4% and water and waste of 1.6%.

• The monthly increase in manufacturing output of 0.4% was supported by increases in 7 of the 13 sub-sectors, led by basic pharmaceutical products (4.5%), rubber and plastic products (3.0%) and basic metals and metal products (1.3%).

• In Quarter 2 2018, the Index of Production increased by 1.4% compared with Quarter 2 2017, due primarily to a rise in manufacturing of 1.3%.

In this release, the earliest period open for revision was April 2018. This is in line with the National Accounts Revisions Policy.

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 13.8% of the output approach to the measurement of GDP.

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

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.

Due to the move to our new monthly GDP publication approach, estimates for June 2018 are sourced from a lower number of survey replies. However, the response rate for June 2018 is higher than the previous GDP publication approach, where the preliminary estimate included a forecast for the last month in a calendar quarter. The impact has been reduced by ensuring main contributors have responded. Current and historic MBS response rates are published alongside this release.

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. Production and manufacturing output have risen but remain 6.2% and 2.4% lower, respectively, in Quarter 2 (Apr to June) 2018 than the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008.

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

Manufacturing

Manufacturing output in Quarter 2 2018 compared with Quarter 1 2018 has decreased by 0.9%, due to widespread weakness across the sector, with falls in 8 of the 13 sub-sectors.

The Quarter 2 2018 weakness was due primarily to:

• a fall of 4.6% in metal products, led by fabricated metal products, which fell by 3.3% and continues the recent weakness in this industry since the start of 2018

• a fall of 1.6% in transport equipment, led by motor vehicles, trailers and semi-trailers, which fell by 3.9%, the weakest growth since the three months to February 2014 when it fell by 4.1%; this was supported by a fall in nominal total turnover, led by a decrease in domestic turnover of 8.6% and export turnover of 10.0% for this industry; this was published today (10 August 2018) in the Monthly Business Survey turnover in production industries dataset.

• a 4.5% fall for machinery and equipment not elsewhere classified, which displays the weakest three-month growth since July 2015, when it fell by 4.9%; responder-led evidence suggested that there was more impact during Quarter 1 2018 from the erratic nature of infrastructure projects compared with Quarter 2 2018

This is the fourth consecutive decrease in three-monthly total manufacturing output since February 2018. In the past few releases of this bulletin, we have alerted users to a marked slowdown in output in this sector over the latter part of 2017 and the beginning of 2018. This slowdown over a longer time span can be understood further when considering current price non-seasonally adjusted manufacturing growth, for export and domestic turnover for three-months-on-three-months a year ago (Figure 3).

Figure 3 shows that growth in export turnover peaked in January 2017 at 18.2%. In contrast, domestic turnover growth peaked in March 2017 at 5.0%. Export turnover has gradually declined since January 2017 to 3.5% for the three months to June 2018, compared with the same three months to June 2017. Notably, export growth surpassed domestic growth in June 2018 having fallen behind domestic growth during May 2018.

The monthly rise of 0.4% in manufacturing is the second consecutive increase in this sector, following growth of 0.6% in May 2018.

The monthly increase of 0.4% is due primarily to:

• a rise of 4.5% in basic pharmaceutical products, continuing the recent strength since April 2018; this is supported by an increase in nominal export turnover growth of 17.3%, published today (10 August 2018) in the Monthly Business Survey turnover in production industries dataset
• a rise of 3.0% in rubber and plastic products, due to widespread strength throughout the sub-sector; this is the strongest growth since April 2016 when it rose by 3.5%

Within the food and beverages sector, which rose by 0.7%, it should be noted that despite the continuation of the good weather during June 2018 allied to the FIFA World Cup, we received no responder-led evidence to suggest that any underlying strength was due to those factors.

The three months on three months a year ago growth of 1.3% is due to:

• widespread strength throughout the sector, with 9 of the 13 sub-sectors increasing
• nominal total manufacturing turnover increasing by 2.3% compared with the same three months a year ago

Electricity and gas

For Quarter 2 2018 compared with Quarter 1 2018, electricity and gas output has decreased by 2.7%, due mainly to gas supply, which fell by 6.7%. This decrease is due mainly to:

• higher than average temperatures across Quarter 2 2018 resulting in less demand for gas; according to the Met Office, the provisional UK mean temperature was above the 1981 to 2010 long-term average for April, May and June 2018
• lower than average temperatures across Quarter 1 2018, which saw demand for gas increase

Mining and quarrying

In the three months to June 2018, mining and quarrying output rose by 0.7%, due to an increase within other mining and quarrying of 2.0%. This is the strongest growth since July 2017, when it also rose by 2.0%.

In contrast, monthly output decreased by 0.5%, led by a fall of 0.9% in oil and gas extraction, due to planned maintenance during June 2018.

Water and waste

In the three months to June 2018 compared with the three months to March 2018, output in water supply and waste management increased by 1.9%, due mainly to an increase in waste collection and treatment.

Alongside this publication we publish the Index of Services (IoS) and Construction output in Great Britain, allowing for an estimate of monthly gross domestic product (GDP), which is also published today (10 August 2018).

We published the Monthly economic commentary: June 2018 on 29 June 2018, presenting analysis of the latest estimate of GDP 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 2015 equals 100 basis, while UK data are calculated on a 2016 equals 100 basis.

The Index of Production (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 data from the Monthly Business Survey (MBS).

In addition, from the Index of Production, UK: November 2017 bulletin published in January 2018, Value Added Tax (VAT) data have been included across 64 production industries for small and medium-sized businesses. 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 on 19 March 2018).

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 Monthly Business Survey turnover in 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 many 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.

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 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 2016 equals 100
• Index of Production and industry sectors to four decimal places
• Monthly Business Survey 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

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