Index of Services, UK: August 2019

• In the three months to August 2019, services output increased by 0.4% compared with the three months ending May 2019.

• The professional, scientific and technical sector made the largest contribution to this growth, contributing 0.15 percentage points.

• Index of Services (IoS) was flat between July 2019 and August 2019.

• In the three months to August 2019, services output increased by 1.6% compared with the three months ending August 2018.

• In this release of data, the earliest period open to revision is January 1997 as this dataset contains the annual updates that will be included in the Blue Book 2019 due to be published on 31 October 2019.

The monthly Index of Services (IoS) provides a timely indicator of growth in the output of the services industries. It is the largest contributor to the output approach in the measurement of gross domestic product (GDP), accounting for 79.6% of UK GDP in 2016. Also published on 10 October 2019 is the GDP monthly estimate, UK: August 2019.

This August 2019 release contains revisions from January 1997 onwards and is consistent with the National Accounts Revisions Policy. The revisions up to June 2019 are consistent with those published in the Quarterly national accounts on 30 September 2019 and includes the annual updates from the Blue Book and Pink Book 2019 (published 31 October 2019). These revised data now include Value Added Tax (VAT) data for the first time in Quarter 4 (Oct to Dec) 2018 and Quarter 1 (Jan to Mar) 2019.

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 of services industries dataset, which was published alongside this release. Note that the MBS turnover of services industries dataset does not contain data from VAT returns, which have been included in the IoS.

Care should be taken when using the month-on-month growth rates as data can be volatile; longer-term growth rates and examination of the time series allow for better interpretation of the statistics.

The IoS is an important economic indicator and one of the earliest short-term measures of economic activity. It is used in the compilation of the UK National Accounts and widely used by private and public sector institutions, particularly by the Bank of England and Her Majesty’s Treasury to assist in informed decision- and policy-making.

The UK IoS has been designated by the UK Statistics Authority as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Statistics.

In the three months to August 2019, services output increased by 0.4% compared with the three months ending May 2019.

After a period of weakening following the three months to July 2018 (1.0%) the Index of Services (IoS) has strengthened in the three-month estimates for July 2019 and August 2019.

This reflects the flat growth seen in the month-on-month estimates between February 2019 and April 2019 (Figure 3), but also a strengthening in the professional, scientific and technical sector in the month-on-month estimates since May 2019.

Professional, scientific and technical activities was the largest contributing sector to growth in the latest three months. It increased by 1.5% and contributed 0.15 percentage points.

The professional, scientific and technical activities sector has seen consistent strong growth since January 2015. The sector, however, weakened at the start of 2019 and saw four consecutive periods of negative growth from the three months to February 2019. Several industries within the sector saw strong growth at the end of 2018 and then saw a fallback at the start of 2019, with growth from fewer industries offsetting these falls. The sector has now strengthened since the three months to June 2019.

Figure 1 shows the three-month on three-month IoS and the professional, scientific and technical sector seasonally adjusted index from January 2015 to August 2019.

Figure 2 shows the three-month on three-month contribution of the professional, scientific and technical sector along with the other IoS sectors for the three months to August 2019.

There was a widespread rise in the professional, scientific and technical activities sector in the three months to August 2019, with six out of the eight industries increasing. The largest contributing industries were:

• head offices and management consultants, which increased by 2.9%, contributing 0.05 percentage points

• accounting and auditing activities, which increased by 2.4%, contributing 0.04 percentage points

• advertising and market research, which increased by 2.7%, contributing 0.04 percentage points

The information and communication sector also saw a large contribution to the overall three-month on three-month movement. It increased by 1.4% and contributed 0.13 percentage points. The motion pictures industry was the main driver to this growth and was also the largest contributing services industry in the latest three months. The industry grew by 8.8% and contributed 0.09 percentage points after seeing strong June 2019 and July 2019 growth. Film and TV production was largely behind this.

Strength in the computer programming industry continued and was also behind the growth in the information and communication sector. The industry increased by 0.9%, contributing 0.04 percentage points with all components increasing in the latest three months.

After a long period of negative growth, the financial and insurance sector has experienced two consecutive three-month on three-month increases. In the three months to August 2019 it grew by 0.8% and contributed 0.06 percentage points. The financial service activities industry is behind nearly all this growth. A large proportion of data in the latest periods across the sector is forecast, however, the financial service activities industry was also boosted by revisions up to Quarter 2 (Apr to June) 2019 based on actual data replacing forecasts.

The retail trade industry also contributed to the three-month on three-month increase. It increased by 0.7% and contributed 0.05 percentage points. Growth in non-store retailing was the main reason for the increase; for more information please see Retail sales, Great Britain: August 2019. This rise was offset in the wholesale, retail and motor trade sector by a fall in the wholesale trade industry. It fell by 1.0% and contributed negative 0.04 percentage points. Large businesses in the wholesale on a fee or contract component were behind this fall.

Services output showed no growth to one decimal place in August 2019.

Figure 3 shows the month-on-month Index of Services (IoS) growth rates since January 2012. Figure 4 shows the month-on-month contributions of each of the IoS sectors for August 2019.

IoS growth has been subdued more recently, not seeing monthly growth larger than 0.3% since May 2018, and 0.4% since September 2016. Services has also seen five month-on-month estimates of no positive growth in the last year.

Care should be taken when using the month-on-month growth rates as data can be volatile.

Growth at sector level was mixed in August 2019, with 5 out of 14 sectors decreasing, while there were increases in seven sectors and two sectors showed no growth.

The two largest negative contributing sectors were information and communication, and administrative and support services. They decreased by 0.8% and 1.1% respectively, both contributing negative 0.08 percentage points.

Industries responsible for the fall in information and communication were:

• motion pictures, which decreased by 2.7%, contributing negative 0.03 percentage points; which followed a strong July 2019

• computer programming, which decreased by 0.8%, contributing negative 0.03 percentage points

Film production, film and tv post production, cinemas and computer consultancy were behind the falls in the two industries.

There were widespread falls in the administrative and support services sector with five out of the six industries falling. The industry contributing most to the fall was employment activities, which fell by 2.0% and contributed negative 0.04 percentage points. Large businesses within the temporary employment agencies was the main reason for the fall.

Offsetting some of this was professional, scientific and technical activities. The sector increased by 0.8% and contributed 0.08 percentage points. Legal activities was behind this rise following a fall in July 2019. The industry increased by 3.1% and contributed 0.05 percentage points.

The other notable industry movements across services were a fall in the food and beverage activities industry and a rise in the motor trade industry. Large businesses within the event catering component were behind the decrease in food and beverage activities. The industry decreased by 1.7% and contributed negative 0.04 percentage points. There was widespread strength across motor trade; the industry grew by 2.0% and contributed 0.04 percentage points.

Figure 5 shows the three-month on a year ago Index of Services (IoS) growth rates since January 2012.

In the three months to August 2019, services output increased by 1.6% compared with the three months ending August 2018. This is equal to the three months to July 2019 and continues a weakening from the three months to December 2018 (2.6%). The growth in the three months to August 2019 was last lower in the three months to March 2018, which grew by 1.5%. Services has been more subdued recently but also saw a strong summer in 2018, which will be a factor behind the current weakening in the three-month on three-month growth a year ago.

Alongside this publication, we publish the Index of Production (IoP) and Construction output in Great Britain, allowing for an estimate of monthly gross domestic product (GDP), which is also published today (10 October 2019).

On 2 April 2019, we published Services sector performance, UK: 2008 to 2018. The article details the changes that have taken place in the UK services sector from 2008 to 2018. It also looks at the differences between public sector-dominated sectors and the rest of the Index of Services (IoS) and compares the growth of individual IoS sectors in more detail.

International comparisons

International comparison with the IoS is difficult, as most comparable economies do not produce equivalent estimates.

Eurostat turnover in services estimates are not comparable with the IoS, as they exclude the wholesale and retail trade; furthermore, most of the estimates are only available quarterly. The US Bureau of Economic Analysis also produces services output estimates, but only on a quarterly basis, with a four-month lag time. Japan has a direct equivalent of the IoS, but the estimates are not seasonally adjusted.

The closest equivalent estimates are from Canada, which produces a monthly output estimate of GDP with a breakdown by industry (including an aggregate for services). There are also comparable quarterly estimates from Sweden and quarterly estimates from Ireland.

This release is consistent with the Blue Book 2019 dataset published in the latest Quarterly national accounts published on 30 September 2019. A number of methodological changes have been made and improved source data have been used, in addition to revisions caused by taking on updated source data as would happen in all quarterly national accounts releases. Further details about the main changes affecting this release are provided in this latest quarterly national accounts release, along with analysis of the revisions to each quarter from 2017 onwards.

In previous releases, we modelled a value for the pension funding industry using existing data sources. However, after an internal review, it is clear that, conceptually, this industry should have zero gross value added.

Pension funds are not companies so there is no employment. Their assets are owned by policyholders, so the asset owners are only in the household sector (there may be some in the rest of the world, but currently we treat cross-border transfers, in both directions, as zero).

Furthermore, conceptually, the output (service charge) is paid to the fund by households and goes directly to the fund manager in the form of intermediate consumption. As such, GVA is zero for the fund as the value is added by the fund manager. Fund managers fall under the activities auxiliary to financial services and insurance industry.

As a result the pension funding industry will be zero in this and future releases.

At the same time we have reviewed the methodology of the activities auxiliary to financial services and insurance industry. We have concluded that it would be better to follow the benchmark from supply and use and forecast for later periods as it is more representative than the basket of previous indicators.

The monthly Index of Services (IoS) was developed to provide a timely indicator of growth in the output of services industries, at constant prices for the UK. The IoS is an important component of monthly output – gross domestic product output approach (GDP(o)) – representing about 79.6% of UK gross domestic product (GDP) as of 2016. The IoS shares the exact same industry coverage as the corresponding quarterly series within GDP(o).

These data are used to produce seasonally adjusted estimates of output at chained volume measures (removing the effect of price changes). Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data.

The IoS is compiled using data from several different sources (Table 1); this is detailed further in the GDP(o) data sources catalogue. In addition, we include Value Added Tax (VAT) data across 42 Standard Industrial Classifications (SICs) for small- and medium-sized businesses. These have been used to supplement data from the Monthly Business Survey (MBS) for the period January 2016 to March 2019.

Further information on the use of VAT data was published in the VAT turnover data in National Accounts: background and methodology.

The GDP(o) methods and sources pages provide more information on the data that underpin these statistics; of particular note is the GDP(o) data sources catalogue.

Notes:

1. The Monthly Business Survey (MBS) data are published alongside this release in the MBS turnover of services industries dataset.

2. Data relating to the retail industry are broadly comparable with Retail sales, Great Britain: August 2019, published on 19 September 2019.

3. For further information on what is included within Other, please see the GDP(o) data sources catalogue.

This August 2019 release contains revisions from January 1997 onwards due to the Blue Book 2019 updates and is consistent with the National Accounts Revisions Policy. Revisions can be made for a variety of reasons. The most common include:

• updates to the annual gross value added (GVA) weights

• statistical methods

• alignment to gross domestic product (GDP) annual growths

• 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

• Her Majesty’s Revenue and Customs (HMRC) VAT returns replacing MBS data for small- and medium-sized businesses when VAT estimates become available every quarter

Published alongside this release, the IoS datasets contain additional material, including:

• MBS response rates (current and historical)

• IoS and main component and sector indices to four decimal places

• publication tables

• revisions triangles

• lower-level time series data

• MBS turnover of services industries

The Index of Services 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