Index of Production, UK: March 2019

Movements in the volume of production for the UK production industries: manufacturing, mining and quarrying, energy supply, and water and waste management. Figures are seasonally adjusted.

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Email Mark Stephens

Dyddiad y datganiad:
10 May 2019

Cyhoeddiad nesaf:
10 June 2019

1. Main points

  • Production output rose by 1.4% in Quarter 1 (Jan to Mar) 2019, compared with Quarter 4 (Oct to Dec) 2018, due to rises from manufacturing, and mining and quarrying.

  • The quarterly increase of 2.2% in manufacturing is due mainly to rises of 9.4% from pharmaceuticals, 2.7% from food products, beverages and tobacco, and 3.2% from metals and metal products.

  • Production output rose by 0.7% between February 2019 and March 2019; the manufacturing sector provided the largest upward contribution, rising by 0.9%, its third consecutive monthly rise.

  • In March 2019, the monthly increase in manufacturing output was due to rises in 8 of the 13 subsectors and follows a 1.0% rise in February 2019; the largest upward contribution came from pharmaceutical products, which rose by 4.0%.

  • In Quarter 1 2019, production output increased by 0.6% compared with Quarter 1 2018; with notable rises in manufacturing of 1.2% and mining and quarrying of 6.0%, partially offset by a fall of 5.9% from electricity and gas.

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2. Things you need to know about this release

This March 2019 release contains revisions from January 2019 onwards, and is consistent with the National Accounts Revisions Policy.

This release includes Value Added Tax (VAT) data up to and including Quarter 3 (July to Sept) 2018.

On the 11 April 2019, we published the Quality assurance of administrative data (QAAD) report for Value Added Tax turnover. This looks at how we compile and use VAT data in the short-term economic output indicators.

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 VAT returns, which have been included in the IoP.

For further detail on the longer-term trend within manufacturing, please see an article titled Manufacturing sector performance, UK: 2008 to 2018, which was published on 2 April 2019. This provides an overview of the changes in the manufacturing sector between 2008 and 2018, focusing on the industries that have grown or shrunk the most.

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.

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3. Production in detail

Figures 1 and 2 show that growth for the Index of Production (IoP) and Index of Manufacturing (IoM) was more pronounced from the beginning of 2010, as the economy recovered, before a downturn during 2012. Production and manufacturing output have risen since then but remain 5.3% and 0.4% lower respectively for Quarter 1 (Jan to Mar) 2019 than the pre-downturn gross domestic product (GDP) peak in Quarter 1 2008.

Table 1 shows the growth rates and contributions for the IoP and sectors for March 2019.

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4. What is contributing to the quarter on previous quarter increase?

Total production output for Quarter 1 (Jan to Mar) 2019, compared with Quarter 4 (Oct to Dec) 2018, increased by 1.4%, driven by rises in two of the four main sectors. This follows a fall of 0.8% during Quarter 4 2018. This is also the strongest three-monthly rise in production output since February 2017, when it rose by 1.6%.

Providing the largest upward contribution to total production output was an increase of 2.2% in manufacturing output (Figure 3), driven by widespread strength, with 11 of the 13 subsectors displaying upward contributions. This is the strongest quarterly rise since Quarter 3 (July to Sept) 1988, when it rose by 2.9%.

It is also the strongest three-monthly growth since May 2010, when it rose by 2.4%, and equals the rise in February 2017, when it rose by 2.2%.

The rise in manufacturing was due primarily to strong increases from:

  • the volatile basic pharmaceutical products subsector (9.4%), due primarily to export strength during January and March 2019

  • food products, beverages and tobacco (2.7%)

  • basic metals and metal products (3.2%), driven by monthly strength during January 2019 from the weapons and ammunition subindustry, which increased by 25.5%

The strong growth in manufacturing is consistent with an increase in activity ahead of the UK’s originally intended departure date from the European Union, and relates to the timing of deliveries from manufacturing businesses to their customers. However, we are unable to quantify the effect of this.

It should be noted that manufacturing data are not systematically adjusted for changes in inventories (stocks) of work in progress or finished goods. This adjustment process ceased in 2008 based on an assessment of the quality of the applied adjustment.

In the past we have highlighted the pharmaceuticals subsector, which often displays erratic patterns of growth. Although there is strong growth in this industry during Quarter 1 2019, there is similar and widespread growth across manufacturing. Despite the volatility within pharmaceuticals, we have received responder-led evidence that the strength over Quarter 1 2019 is due to increased exports during January and March 2019. Some of this export strength is in anticipation of the UK’s exit from the European Union at the end of March 2019, before it was known that the UK’s proposed exit from the European Union had been delayed to 31 October 2019.

Within food products, beverages and tobacco, meat products rose by 4.6%, due to monthly strength during January 2019; and alcoholic beverages rose by 5.7%, the strongest three-monthly growth since August 2013, due to consistent strength during Quarter 1 2019. Strong export sales of spirits such as whisky is a factor behind increased output.

Mining and quarrying rose by 2.0%, due to widespread strength throughout the sector led by oil and gas extraction (1.5%). This was due mainly to increased output during February 2019, where notable strength in the monthly index was due to newer oil fields increasing production.

The fall of 2.3% within electricity and gas supply was due mainly to a decrease of 2.6% from electricity generation and distribution due to less demand, due to warmer temperatures. The long-term average temperatures were warmer by 2.4 degrees Celsius and 1.3 degrees Celsius respectively, during February 2019 and March 2019.

The fall of 1.7% from water and waste is due mainly to widespread weakness, with all four sub-industries displaying decreased output.

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5. What is contributing to the month on previous month increase?

Monthly total production output increased for the third consecutive period, rising by 0.7% in March 2019, following a rise of 0.6% during February 2019.

The strength is due primarily to manufacturing increasing by 0.9% and is supported by a rise from mining and quarrying of 0.9%. Within manufacturing, there is widespread strength this month, with 8 of the 13 subsectors rising.

Driving the strength within manufacturing were:

  • pharmaceutical products, which rose by 4.0%, underpinned by an increase in nominal export turnover of 24.5%

  • transport equipment, which rose by 1.4%, led by a 1.9% increase from motor vehicles, trailers and semi-trailers

  • other manufacturing and repair, which rose by 1.8%, the strongest growth since September 2017

The growth of 1.9% within the motor vehicles, trailers and semi-trailers sub-industry this month, is the strongest since May 2018. This is supported by a monthly increase in nominal domestic turnover of 14.5%, in comparison to nominal export turnover, which rose by 4.5%. However, the sub-industry remains 0.3% down quarter-on-quarter. Users are directed to the December 2018 Index of Production bulletin, which highlights a number of factors behind a weakening in demand for new cars in the UK since the end of 2016.

The nominal turnover growth rates are published alongside this release, within our Monthly Business Survey in production industries.

The mining and quarrying sector rose by 0.9%, led by a rise of 1.7% in oil and gas extraction, continuing recent strength within this sub-industry.

Offsetting the upward contribution from mining and quarrying is the downward contribution from electricity and gas, which decreased by 0.6%. Within this sector, gas supply fell by 1.1%, due mainly to less demand due to warmer than average temperatures.

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6. What is contributing to the quarter on same quarter a year ago increase?

Total production output for Quarter 1 (Jan to Mar) 2019 has increased by 0.6%, compared with Quarter 1 2018. This was driven by a rise in two of the four main sectors.

Mining and quarrying rose by 6.0%, due mainly to the impact of an expansion in oil and gas fields coming online at the end of 2017, with production steadily rising from that point.

Electricity and gas fell by 5.9%, affected by the UK experiencing a spell of severe winter weather (the Beast from the East), with low temperatures and snowfalls during February and March 2018. This weather effect increased demand in electricity and gas during Quarter 1 2018.

Manufacturing rose by 1.2%, providing the largest upward contribution and was due to widespread strength, with 9 of the 13 subsectors increasing.

The rise in manufacturing was driven by notable increases from:

  • basic pharmaceutical products at 11.1%

  • food products, beverages and tobacco at 4.3%, due primarily to continued strength from alcoholic beverages, which rose by 9.8% and meat and meat products, which rose by 6.3%

  • chemicals and chemical products at 5.5%, due mainly to petrochemicals with a rise of 12.7%, driven by large businesses

Partially offsetting the increase in overall manufacturing growth was a fall of 7.0% within machinery and equipment not elsewhere classified, driven by large businesses completing fewer contracts on major projects than the same time a year ago.

Total manufacturing output returns to positive growth following a period of consistent negative growth since October 2018 (Figure 4).

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8. Quality and methodology

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).

On 11 October 2018, we published an article on the future use of VAT as part of the economic review, which considers the strategic collection model for administrative and survey data for short-term indicators, including the Index of Production.

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 (MBS) 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 from 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).

Revisions to the Index of Production can be made for a variety of reasons. The most common include:

  • 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

  • HMRC VAT returns replacing MBS data for small- and medium-sized businesses when VAT estimates become available every quarter

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

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.

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