Index of Services, UK: April 2016

The Index of Services is estimated to have increased by 3.0% in April 2016 compared with April 2015. All of the 4 main components of the services industries increased in the most recent month compared with the same month a year ago.

The largest contribution to total growth came from business services and finance, which contributed 1.2 percentage points.

The latest Index of Services estimates show that output increased by 0.6% between March 2016 and April 2016. This follows negative growth of 0.3% between February 2016 and March 2016, which is revised down 0.2 percentage points from the previous estimate.

The Index of Services increased by 0.6% in Quarter 1 (Jan to Mar) 2016 compared with Quarter 4 (Oct to Dec) 2015. This figure was unrevised from the estimate used in the gross domestic product (GDP) second estimate, published on 26 May 2016. This figure is consistent with the Quarterly National Accounts, published on 30 June 2016.

In this release of data, the earliest period open to revision is January 1997 as this dataset contains the annual updates which will be included in the Blue Book 2016 dataset; more information is included in the revisions section. The reference year and last base year for the index have been moved to 2013. The figures within this release are estimates and are on a seasonally adjusted basis.

About the IoS

The monthly IoS provides a timely indicator of growth in the output of the services industries. The IoS is an important economic indicator and shares exactly the same industry coverage as the corresponding quarterly series within UK gross domestic product (GDP). The primary purpose of the IoS is to produce a short-term measure of the output of the services industries within the UK economy and show the monthly movements in the gross value added (GVA) of the services industries (2007 Standard Industrial Classification (SIC 2007) sections G to T).

The 4 main components of the services industries are:

• distribution, hotels and restaurants
• transport, storage and communications
• business services and finance
• government and other services

The IoS is the largest contributor to the output approach to the measurement of GDP, accounting for 78.8% of UK GDP in 2013.

All data in this bulletin are seasonally adjusted estimates and have had the effect of price changes removed (in other words, the data are deflated). Further information on some of the main concepts (including seasonal adjustment and deflation) underlying the estimates can be found in background note 12.

The quality of the IoS

The IoS is published around 8 weeks after the end of the reference month. There is no simple way of measuring the accuracy of the IoS, that is, the extent to which the estimate measures the underlying “true” value of the output growth (of the services industries) in the UK for a particular period. All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics the Office for National Statistics (ONS) measures and publishes the sampling error associated with the estimate, using this as an indicator of accuracy. However, as IoS is constructed from a wide variety of data sources, some of which are not based on random samples, we don’t publish a measure of the sampling error associated with it.

Reliability is one dimension of measuring accuracy, using evidence from analyses of revisions to assess the closeness of early estimates to subsequent estimated values. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. Figures for the most recent months are provisional and subject to revision in light of:

• 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

Revisions to the IoS are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal. More information on the most recent revisions analysis can be found in the component analysis section and in background note 18.

It should be noted that care should be taken when using the month-on-month growth rates, due to their volatility (background note 11).

Further information on the quality of the IoS is available in the Quality of the IoS report on the Index of Services methodology page on our website. It should be noted that as part of the IoS industry review process, we are continually working on methodological changes to improve the accuracy of the IoS.

The Index of Services (IoS) measures the quantity of output from all UK services industries, which account for more than three-quarters of the output approach to the measurement of GDP. Index values are currently referenced to 2013 so that the average for 2013 is equal to 100. Therefore, an index value of 110 would indicate that output is 10% higher than the average for 2013.

As seen in Figure 1, the IoS increased by 3.0% in April 2016 compared with April 2015. In order of their contribution to growth (listed in Table IOS1 in the Index of Services publication tables dataset):

• business services and finance increased by 3.1%
• distribution, hotels and restaurants increased by 5.0%
• transport, storage and communications increased by 3.7%
• government and other services increased by 1.1%

Further detail on these movements can be found in the component analysis section.

Between March 2016 and April 2016, as seen in Figure 2, IoS output increased by 0.6%.

Out of the 4 main components of the services industries, 3 increased in the most recent month compared with the previous month. In order of their contribution to growth (listed in Table IOS1 in the Index of Services publication tables dataset):

• transport storage and communication increased by 2.1%
• business services and finance increased by 0.6%
• distribution, hotels and restaurants increased by 0.8%

In contrast, government and other services decreased by 0.1%.

More detail on individual components can be found in the Index of Services publication tables dataset. The tables also provide information on the growth for the 3 months ending in April 2016 compared with the previous 3 months and compared with the 3 months ending April 2015.

Total services grew by 2.5% between Quarter 1 (Jan to Mar) 2015 and Quarter 1 (Jan to Mar) 2016 and by 0.6% between Quarter 4 (Oct to Dec) 2015 and Quarter 1 (Jan to Mar) 2016. This compares with growth rates of 2.0% and 0.4% respectively for the economy as a whole.

Since 1997, the services industries as a whole have grown at a faster rate than all other headline industries. While gross domestic products (GDP) has grown at a compound average growth rate (further information on compound average growth can be found in background note 12) of 2.0% per year from 1998 to 2015, services have grown at a compound average growth rate of 2.6% per year. (More information can be found in Quarterly national accounts: January to March 2016. This has led to a continuing re-orientation of the economy towards services, despite productivity in the services industries as a whole rising more slowly than in the production industries (and manufacturing in particular) since 1997 (more information can be found in Labour Productivity: Oct to Dec 2015). The higher output growth therefore reflects the increasing share of the labour force employed in services, which grew from 73% to 80% between 1997 and 2015 (UK Labour Market: June 2016).

In addition to strong long-run growth, the services industries as a whole were also less affected by the downturn (between 2007 and 2009) than other headline industries, such as production and construction. Following the downturn, the relatively strong growth in the services industries has provided the largest contribution to the recovery and has been the only headline industry grouping to have surpassed its pre-downturn peak levels (more information can be found in Quarterly national accounts: January to March 2016).

Even though the services industries as a whole have been performing better than all other headline industries, the growth within the services’ sub-components has been quite varied. Figure 3 shows that from 1998 to 2015, transport, storage and communication and business services and finance grew faster than the services industries as a whole, at compound average growth rates of 4.0% and 3.2% per year respectively. Meanwhile, services grew at a compound average growth rate of 2.6% per year over the same period. However, government and other services, and distribution, hotels and restaurants grew at slower rates than the services industries as a whole (at compound average growth rates of 1.5% and 1.9% per year respectively) from 1998 to 2015.

The economy’s downturn, Quarter 1 (Jan to Mar) 2008 to Quarter 2 (Apr to June) 2009, affected the 4 sub-components of the services industries to different degrees. Distribution, hotels and restaurants, and transport, storage and communication were affected the most with their output falling by 9.4% and 9.3% respectively, while the output of the services industries as a whole contracted by 4.6% over the same period. Business services and finance, and government and other services were impacted less severely, with their output contracting by 3.9% and 0.3% respectively.

Business services and finance experienced a strong recovery following the economy’s downturn and in Quarter 1 (Jan to Mar) 2016, output was 13.2% above pre-downturn levels. The recoveries of transport, storage and communication, and distribution, hotels and restaurants were also strong and in Quarter 1 (Jan to Mar) 2016 output was 11.5% and 11.7% above their respective levels in Quarter 1 (Jan to Mar) 2008. However, the recovery of the government and other services industries was more modest and in Quarter 1 (Jan to Mar) 2016, output was 6.4% above its Quarter 1 (Jan to Mar) 2008 value.

Figure 4 shows the share of nominal (unadjusted for the effect of price changes) gross value added (GVA) accounted for by services in the UK and a selection of other major economies. More information on data for France, Germany, Italy, Japan and the USA can be found on the Organisation for Economic Co-operation and Development (OECD) website. In 1997, the share of nominal GVA accounted for by services in the UK was just under 72%, in the top half of the range relative to the other economies shown. By 2014 the UK had become relatively more reliant on services, as its share rose to over 79% of nominal GVA.

With a weight of 78.8%, the services industries are the largest industrial grouping in the output approach to measuring gross domestic product (GDP). The releases for the short-term economic indicators that feed directly into the output approach to measuring GDP include a table detailing growth in the 4 main industrial groupings (Table 2). This will aid understanding of the relationship between the individual short-term releases and GDP output.

In Quarter 1 (Jan to Mar) 2016, GDP was estimated to have increased by 0.4% compared with the previous quarter. The contribution an industry grouping makes to the GDP quarterly growth is dependent on the quarterly change in that industry grouping and its weight within the output approach to measuring GDP.

Monthly estimates are produced for each industrial grouping except agriculture. The April 2016 estimates for production, construction and retail sales were published on 8 June 2016, 10 June and 16 June 2016 respectively. The Quarterly National Accounts for Quarter 1 (Jan to Mar) 2016 was published on 30 June 2016 alongside this bulletin. In line with the usual Blue Book process estimates of production and construction, used in the Quarterly National Accounts published 30 June 2016, are consistent with the Blue Book 2016 dataset rather than the most recent publications.

Distribution, hotels and restaurants

The index of distribution, hotels and restaurants increased by 5.0% in April 2016 compared with April 2015; this follows an increase of 4.2% in March 2016 compared with the same month a year earlier. The main contributors to the increase were: wholesale and retail trade and repair of motor vehicles and motorcycles, which increased by 14.0%, and retail trade except of motor vehicles and motorcycles, which increased by 4.8%.

Transport, storage and communications

The index of transport, storage and communications increased by 3.7% in April 2016 compared with April 2015; this follows an increase of 1.5% in March 2016 compared with the same month a year earlier. The main contributors to the increase were: computer programming, consultancy and related activities, which increased by 8.9%, and publishing audiovisual and broadcasting activities, which increased by 9.8%.

Business services and finance

The index of business services and finance increased by 3.1% in April 2016 compared with April 2015; this follows an increase of 2.2% in March 2016 compared with the same month a year earlier. The main contributors to the increase were: other professional service activities, which increased by 4.6%, administrative and support service activities, which increased by 4.6%, and other professional scientific and technical activities, which increased by 13.0%.

Government and other services

The index of government and other services increased by 1.1% in April 2016 compared with April 2015; this follows an increase of 1.2% in March 2016 compared with the same month a year earlier. The main contributors to the increase were: human health and social work activities, which increased by 3.7%, and other service activities, which increased by 3.2%.

Revisions

The Index of Services (IoS) follows the National Accounts revisions policy. Revisions are caused by a number of factors including, but not limited to:

• revisions to source data due to late responses
• actual data replacing forecast data
• revisions to seasonal factors that are re-estimated every period

More information on IoS revisions is available on the Index of Services methodology page.

We produce revisions triangles of services growth to provide users with an indication of the reliability of this main indicator. Statistical tests are performed on the average revision to test if it is statistically significantly different to 0. Further information can be found in background note 17.

In this release of data, the earliest period open to revision is January 1997 as this dataset contains the annual updates which will be included in the Blue Book 2016, to be published on 29 July 2016.

There are numerous sources of revision which will affect services in the Blue Book 2016 publication, including but not limited to:

• updates to the annual gross value added (GVA) weights
• updated source data including inclusion of the postal and courier services and water transport industry reviews and changes to the measurement of imputed rental
• improved statistical methods
• alignment to gross domestic product (GDP) annual growths
• review of seasonal adjustment models

As is common for the first Index of Services publication following the annual updates, there are more and larger revisions than an ordinary publication. These annual changes include updating the reference year and chain link weights for 2013.

Further information on improvements to the output approach to measuring GDP and revisions can be found in the GDP output improvement report.

Further details on the revisions to the IoS components can be found in the RIOS1 tables in the Index of Services publication tables dataset.

According to the UK Standard Industrial Classification 2007 (SIC 2007), other professional, scientific and technical activities (industry 74) include the provision of specialised design, photographic and translation and interpretation activities.

In 2015, this industry generated £9.8 billion of output gross value added (GVA) in current prices, which represented 7.9% of the GVA in the professional, scientific and technical activities section (section M). The share of total output attributed to this industry increased slightly between 1997 and 2015 from 0.4% to 0.6%, suggesting that the industry grew slightly faster than the rest of the economy (Quarterly National Accounts: January to March 2016).

Figure 6 shows that other professional, scientific and technical activities has outperformed the services industries, although it has experienced significant volatility. From Quarter 2 (Apr to June) 1997 to Quarter 1 (Jan to Mar) 2008 other professional, scientific and technical activities grew at a compound average growth rate of 0.9% per quarter, the same rate as services as a whole. Further information on compound average growth can be found in background note 12.

During the economy’s downturn between Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2009, the output of the services industries contracted by 4.6%. Other professional, scientific and technical activities were affected much more severely and over a slightly longer period, falling by 20.4% between Quarter 1 (Jan to Mar) 2008 with its trough in Quarter 3 (July to Sept) 2009.

Services then returned to strong and consistent growth, growing at a compound average growth rate of 0.6% per quarter and surpassing its pre-downturn peak in Quarter 2 (Apr to June) 2012. Despite contracting more than services as a whole in the downturn, other professional, scientific and technical activities saw much faster growth, growing at a compound average growth rate of 2.1% per quarter. By Quarter 1 (Jan to Mar) 2016 the services industries as a whole were 10.7% above their value in Quarter 1 (Jan to Mar) 2008, while other professional, scientific and technical activities was 35.8% above its value.

In the post-downturn period (between 2010 and 2015) the volume of other professional, scientific and technical activities grew by 39.2%, coinciding with a 35.0% increase in the number of employee jobs in the industry. Over the same period, the number of employee jobs worked by men increased by 27.9%, whilst the number of employee jobs worked by women increased by 46.4%. Looking at the working patterns of male and female employees within the industry, male employees were largely made up of full-time workers (86.2% of total male employees in 2015). In contrast there were a greater proportion of female part-time workers within the industry (34.3% of total female employees in 2015) (UK Labour Market: June 2016).