Index of Production, UK: May 2018

• In the three months to May 2018, the Index of Production fell by 0.6% compared with the three months to February 2018, due primarily to a fall of 1.2% in manufacturing; this was partially offset by a rise in mining and quarrying of 4.6%.

• In May 2018, total production was estimated to have decreased by 0.4% compared with April 2018, led by falls in energy supply of 3.2% and mining and quarrying of 4.6%.

• The monthly increase in manufacturing output of 0.4% was supported by increases in 9 of the 13 sub-sectors.

• In the three months to May 2018, the Index of Production increased by 1.8% compared with the same three months to May 2017.

• The earliest period open for revision in this release was January 1997; revisions to Index of Production data up to Quarter 1 (Jan to Mar) 2018 are consistent with Quarterly national accounts: January to March 2018, published on 29 June 2018 and data used for Blue Book 2018, due for release on 31 July 2018.

This May 2018 release is the first time that the Index of Services (IoS), the Index of Production and output in the construction industry, are published alongside each other, allowing for an estimate of monthly GDP, which is also published today (10 July 2018).

In this release, the period open for revision was January 1997; revisions to Index of Production data up to Quarter 4 (Oct to Dec) 2017 are consistent with Quarterly national accounts: January to March 2018, published on 29 June 2018 and data used for Blue Book 2018, due for release on 31 July 2018. This is in line with the standard 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.

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. Production and manufacturing output have risen but remain 6.2% and 2.5% lower, respectively, in the three months to May 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 main sectors for May 2018.

The three months-on-previous three months estimate of total production fell by 0.6% in May 2018, with two of the four main sectors decreasing. The fall in manufacturing of 1.2% is a continuation of the slowdown in output that has been documented in previous releases of this bulletin.

The monthly estimate of total production decreased by 0.4% with falls in energy supply (3.2%), due mainly to less demand because of the higher than average temperature during May 2018, and mining and quarrying (4.6%), due to unplanned maintenance on the Sullom Voe oil and gas terminal. Manufacturing output rose by 0.4% and is the first increase in this sector since December 2017.

Table 2 shows the growth rates and contributions for the IoP and sectors for May 2018.

Manufacturing

Output over the three months to May 2018 compared with the three months to February 2018 has fallen by 1.2%, due to widespread weakness across the sector. This is the largest three-monthly fall since December 2012, when output fell by 1.8%.

In the past few releases of this bulletin, we have alerted users to a marked slowdown in manufacturing output over the latter part of 2017 and the beginning of 2018. This slowdown in output 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 0.0% for the three months to May 2018, compared with the same three months to May 2017. This is the weakest growth since December 2015 when export turnover decreased by 0.4%. Notably, export growth has now fallen behind domestic growth for the first time since January 2015.

In contrast, the monthly rise of 0.4% is the first increase in this sector since December 2017, due mainly to widespread growth across the sector, with 9 of the 13 sub-sectors increasing. This represents a bounceback from the strong fall of 1.3% last month, the largest fall since January 2017. Therefore, due to the weakness last month, the limited strength into May 2018 should only be viewed as a slight improvement.

Pharmaceutical products and transport equipment provide the largest contributions to monthly growth, increasing by 2.4% and 1.1% respectively. Increased turnover from a number of large businesses was reported via the Monthly Business Survey (MBS) for Divisions 21 and 30.3.

Within the transport equipment sub-sector, the aircraft, spacecraft and related machinery industry performed strongly, increasing by 3.3%, supported by an increase in nominal export turnover growth of 10.9%. This increase was published today (10 July 2018) in the Monthly Business Survey turnover in production industries dataset. However, it is important to note that this dataset is not seasonally adjusted and is based on current prices and therefore does not reflect the impact of price changes.

Electricity and gas

For the three months to May 2018 compared with the same three months a year ago, output has increased by 4.4%, due mainly to electricity generation, which rose by 4.4%. This is supported by a rise of 4.3% in gas supply, due mainly to the lower than average temperature and heavy snowfall that affected most parts of the UK during March 2018. According to the Met Office, the provisional UK mean temperature was 3.8 degrees Celsius in March 2018, which is 1.6 degrees Celsius below the 1981 to 2010 long-term average.

There is no notable growth for the three months to May 2018 compared with the same three months to February 2018, with output falling by 0.5%.

The fall in monthly output of 3.2% is mainly attributable to a decrease of 7.3% within the gas supply industry. This is due mainly to the above-average temperature during May 2018 resulting in less demand. According to the Met Office, the provisional UK mean temperature was 12.1 degrees Celsius in May 2018, which is 1.7 degrees Celsius above the 1981 to 2010 long-term average, making it provisionally the joint second-warmest May in the series from 1910.

Mining and quarrying

An increase of 7.6% within oil and gas extraction is the largest contribution to the 4.6% rise in total output for the latest three months to May 2018, compared with the three months to February 2018. Significant weakness in December 2017, due to an unplanned shutdown to the Forties oil pipeline, allied to oil fields coming out of maintenance in April 2018 are the main factors behind the three-monthly strength.

In contrast, monthly output fell by 4.6% due to a decrease within oil and gas extraction of 7.4%. This is due to unplanned maintenance to the Sullom Voe oil and gas terminal for a few days at the beginning of May 2018.

Water and waste

For the latest three months compared with the same three months a year ago, output has increased by 2.1% due to an increase of 7.2% within the sewerage industry.

For the three months to May 2018 compared with the three months to February 2018, output has increased by 1.1%, due to increases within the water supply and waste collection industries of 2.7% and 1.6% respectively.

Monthly output has risen by 1.2%, with all four industries within this sector displaying increases.

Blue Book 2018 constitutes our annual update of the national accounts. The Blue Book is the UK’s national compendium of national accounts data and incorporates a number of improvements to methods and sources into the UK’s National Accounts. These improvements ensure that our national accounts continue to provide a reliable framework for analysing the UK economy and comparing it with other countries. The changes being incorporated in this year’s Blue Book-consistent quarterly national accounts and the impact of these changes on current price and chained volume measure (CVM) estimates of gross domestic product (GDP) are discussed in the National Accounts articles.

The Blue Book 2018 revisions, which begin in January 1997, have affected the Index of Production (IoP) and its components. The main sources of the revision are the annual update of weights and seasonal adjustment models, re-referencing of the published indices, methodological improvements and updated source data. As is common for the first IoP publication following the annual updates, there are larger revisions than in an ordinary publication (see Table IOP5R, which shows the revisions to IoP estimates against the previously published). Revisions can be made for a variety of reasons; the most common include:

• the annual update of the weights used to construct the chained volume measures of output

• the annual update of seasonal adjustment models

• the published indices being re-referenced from 2015 equals 100 to 2016 equals 100

• methodological improvements

• updated source data

• HM Revenue and Customs Value Added Tax (VAT) returns replacing Monthly Business Survey (MBS) data for small and medium-sized businesses when VAT estimates become available every quarter

This is the first release of IoP in which the reference year and last base year have been moved from 2015 to 2016.

The annual update of weights in Blue Book 2018 has decreased the Index of Production weight within total gross value added (GVA) and the output measure of GDP from 139.5 parts per thousand to 138.0 parts per thousand and the annual change in weights has impacted the components of IoP (Table 3).

The impact of the Blue Book 2018 revisions to the IoP affect the level of output over time. However, the profile and performance of production remained broadly unchanged from previously published when both indices are referenced to 2016 equals 100 (Figure 4). The larger divergences show from Quarter 1 (Jan to Mar) 2017, mainly as a result of incorporating updated source data and the introduction of an improvement to the methodology for non-response in the Monthly Business Survey, which underpins the Index of Production release, as detailed in Improving the methodology for survey non-response.

Alongside this publication we publish the GDP monthly estimate, UK statistical bulletin.

We published the Monthly economic commentary: June 2018 on 29 June 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 2015 equals 100 basis, while UK data are calculated on a 2016 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 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: 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

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.