Index of Services, UK: October 2018

• In the three months to October 2018, services output increased by 0.3% compared with the three months ending July 2018.

• The information and communication, and professional, scientific and technical activities sectors were responsible for this growth.

• The Index of Services increased by 0.2% between September 2018 and October 2018.

• The professional, scientific and technical activities sector made the largest contribution to the month-on-month growth, contributing 0.11 percentage points.

• In the three months to October 2018, services output increased by 1.7% compared with the three months ending October 2017.

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 to the measurement of gross domestic product (GDP), accounting for 79.6% of UK GDP in 2016. Also published today (10 December 2018) is the GDP monthly estimate, UK: October 2018.

This October 2018 release contains no revisions and is consistent with the National Accounts Revisions Policy. Further to this release, the Quarterly national accounts published on 21 December 2018 will include revised services data from January 2017 to September 2018. This revised data will also include Value Added Tax (VAT) data for the first time in Quarter 2 (Apr to June) 2018.

We have introduced improvements to some of our import price deflators within this release. The improvements incorporate some of the sample work we have been carrying out on the Import Price Index (IPI) first announced in 2016. We have completed the first stage of work to increase the number of underlying low level price series that contribute to our deflators, thereby improving the representativeness of price movements. Work to estimate the impact of these improvements has demonstrated these deliver negligible revisions to our chained volume measures, with no revisions to one decimal place when these will be published as part of Quarterly National Accounts later this month. These changes form part of long-term ongoing work to improve deflators and we plan to complete further improvements in time for Blue Book 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 in services industries dataset, which was published alongside this release. Note that the MBS turnover in 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 often 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 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 Index of Services 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 October 2018, services output increased by 0.3% compared with the three months ending July 2018; the lowest since the three months to April 2018.

Figure 1 shows the three-month on three-month Index of Services (IoS) and the information and communication seasonally adjusted index from January 2015 to October 2018.

The information and communication sector was the largest contributor to growth in the three months to October 2018. It increased by 1.7% and contributed 0.15 percentage points.

Growth in this sector has outperformed total Index of Services (IoS) for much of the period since January 2015. The sector has only seen one decrease over this period, falling in March 2017. Figure 2 shows the three-month on three-month contribution of the information and communication sector along with the other IoS sectors for October 2018.

Within the information and communication sector, the computer programming industry contributed the most, increasing by 2.6% and contributing 0.09 percentage points. Large programming businesses were the main reason for this three-month on three-month rise.

Professional, scientific and technical activities was the other sector behind the services growth in the three months to October 2018. This increased by 1.3% and contributed 0.13 percentage points. Within this sector, the accounting and auditing activities industry contributed the most and was also the largest contributing industry to the three-month on three-month services growth. This industry’s growth has strengthened in each consecutive month since the three months to April 2018 and is driven by the largest businesses within the industry.

Figure 3 shows the contribution to growth from the wholesale, retail and motor trade sector along with information and communication (Sector J), and professional, scientific and technical activities (Sector M) from October 2017. Sectors J and M combined were responsible for nearly all the growth in the latest three months.

The information and communication, and professional, scientific and technical activities sectors together have contributed consistent contributions to positive Index of Services (IoS) growth since the three months to October 2017.

In comparison, the wholesale, retail and motor trade sector has been less consistent. There was little contribution from October 2017 to April 2018. The sector then saw strong contributions over the summer months due mainly to the retail trade industry. This also resulted in higher services growths; the 0.7% IoS growth in the three months to July 2018 was the highest since the three months to January 2017. It grew by 6.1% and contributed 0.10 percentage points. However, the sector has now seen a fall in the latest three months, decreasing by 0.2% and contributing negative 0.03 percentage points.

The motor trade industry was responsible for the fall in the wholesale, retail and motor trade sector. This industry made the largest negative contribution to overall three-month on three-month growth, decreasing by 2.2% and contributing negative 0.05 percentage points.

Motor trade businesses reported a significant impact over the latest three months due to the worldwide harmonised light vehicle test procedure (WLTP). This was applied to all new car registrations starting from September 2018. These tests are part of new regulations that are used to measure fuel consumption and CO2 emissions from passenger cars, as well as their pollutant emissions.

These changes impacted the sale of new cars component within the motor trade industry, with businesses reporting that testing affected supply. This resulted in a large decrease for the industry in September 2018 as there were fewer models available to sell. The industry still saw a rise in monthly turnover, which is traditional for September due to the new car registrations, however, the industry saw a fall in turnover when compared with September 2017. Businesses have also reported that as the WLTP created delivery backlogs in September 2018, this stock has come through later resulting in some displaced activity to October 2018. October still saw a fall in monthly turnover which is normal, however, this was less of a fall than previous years.

The Monthly Business Survey turnover in services industries dataset is published alongside this release. The impact from the introduction of the WLTP was also reported in the Society of Motor Manufacturers and Traders (SMMT) September 2018 publication, which measures the new car market. In January 2019, we intend to publish a blog exploring recent developments in the motor trade and motor vehicles production industries.

Services output increased by 0.2% in October 2018, following a decrease of 0.1% in September 2018.

Figure 4 shows the month-on-month contributions of each of the Index of Services sectors for October 2018.

There was widespread growth at sector level in October 2018, with increases in 10 of the 14 sectors, while there were falls in three sectors and one sector showed no growth.

The professional, scientific and technical activities sector contributed the most to the monthly increase. It grew by 1.1% and contributed 0.11 percentage points. The accounting and auditing activities industry was the industry largely responsible for this rise after seeing growth for the fourth consecutive month. It increased by 3.6%, contributing 0.06 percentage points. The largest businesses within this industry continued to be behind this growth.

Across the rest of the sectors, the other notable industry rises contributing to the 0.2% services growth were:

• motor trade, which increased by 2.6%, contributing 0.06 percentage points

• office admin, which increased by 3.0%, contributing 0.05 percentage points

• wholesale trade, which increased by 0.8%, contributing 0.04 percentage points

There was continued impact due to the worldwide harmonised light vehicle test procedure (WLTP) in the motor trade industry (see Section 3 for more information).

Partially offsetting these growths was a large sector decrease in information and communication. This sector decreased by 1.9% and contributed negative 0.17 percentage points. Within this sector, the motion pictures industry was the main reason behind this, falling back after a strong September 2018. It saw a decrease of 6.9% and contributed negative 0.08 percentage points.

Figure 5 shows the three month on a year ago Index of Services (IoS) growth rates for each year since 2015.

In the three months to October 2018, services output increased by 1.7% compared with the three months ending October 2017. This is the largest growth since the three months to September 2017, which grew by 1.9%.

The three month on a year growth has strengthened in 2018, since the 1.3% growth in the three months to April 2018. This is also the first time this year that the three month on a year ago growth has surpassed the equivalent month in 2017.

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 December 2018)

International comparisons

International comparison with the Index of Services (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 Ireland.

In January 2019 we intend to publish a blog exploring recent developments in the motor trade and motor vehicles production industries.

We welcome your feedback on this bulletin via our short survey.

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) source catalogue. In addition, we include Value Added Tax (VAT) data across 42 services industries 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 2018. Further information on the use of VAT data was published in the VAT turnover data in National Accounts: background and methodology update.

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

Notes:

1. The Monthly Business Survey (MBS) data is published alongside this release in MBS Turnover in services industries.

2. Data relating to the retail industry are broadly comparable with Retail sales, Great Britain: October 2018, published on 15 November 2018.

3. For further information on what’s included within Other, please see GDP(O) source catalogue.

This October 2018 release contains no revisions and is consistent with the National Accounts Revisions Policy. Revisions 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

• 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 Index of Services datasets contain additional material, including:

• MBS response rates (current and historic)

• 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