Statistical bulletin: Index of Production - August 2011

Key points

• This is the first publication of the Index of Production based on the new UK Standard Industrial Classification.
• The seasonally adjusted Index of Production fell by 1.0 per cent in August 2011 compared to August 2010.
• The seasonally adjusted Index of Manufacturing rose by 1.5 per cent in August 2011 compared to August 2010.
• Between July 2011 and August 2011 overall production rose by 0.2 per cent, with manufacturing falling by 0.3 per cent.

Key figures

Supplementary analysis

The seasonally adjusted index of production fell by 1.0 per cent in August 2011 compared with August 2010.  The last rise on a year ago was in February 2011, which was the 12th consecutive increase.

A decrease of 14.5 per cent in the mining and quarrying sector was only partially offset by an increase of 1.5 per cent in the manufacturing sector and 2.1 per cent in the energy sector. Water and waste management decreased by 0.2 per cent.

The seasonally adjusted index of production rose by 0.2 per cent between August 2011 and July 2011.  The mining and quarrying sector rose by 2.1 per cent and the energy sector rose by 1.9 per cent, contributing 0.3 and 0.2 percentage points respectively. Manufacturing fell between August and July, partially offseting these increases.

Manufacturing

Seasonally adjusted manufacturing output fell by 0.3 per cent in August 2011 compared with July 2011, seven manufacturing industries fell with six rising. This follows a revised monthly fall in July 2011 of 0.2 per cent compared with June 2011.

The largest contributions to the month on month fall in manufacturing output were the manufacture of wood and paper products industries which fell by 3.2 per cent, followed by the manufacture of basic metals and metal products industries which fell by 1.5 per cent. In contrast, the manufacture of food, beverages and tobacco industries rose by 1.0 per cent in August 2011 compared to July 2011, the main contribution came from manufacture of alcoholic beverages which increased by 2.9 per cent.  Anecdotal evidence suggests an increase in exports to Asia, particularly spirits. 

Manufacturing output rose in August 2011 by 1.5 per cent compared to August 2010.  The manufacture of food, beverages and tobacco industries rose by 4.8 per cent, contributing 0.9 percentage points to the month on a year ago manufacturing growth rate.  The manufacture of machinery and equipment industries rose by 8.3 per cent, contributing 0.6 percentage points.

Mining and quarrying

In August 2011, output of the mining and quarrying industries fell by 14.5 per cent compared to August 2010, the 11th consecutive decrease.  The biggest decrease was in the extraction of oil and gas which fell by 18.0 per cent in August 2011 compared with a year ago.

Between August 2011 and July 2011 mining and quarrying increased by 2.1 per cent.  Oil and gas increased by 2.3 per cent contributing 1.8 percentage points to the monthly mining and quarrying growth.

Energy supply

Energy has risen on the month and also on the month a year ago.  Energy supply rose between August 2011 and July 2011 by 1.9 per cent, with increases in electricity supply of 2.8 per cent.  Gas supply decreased by 0.8 per cent on the month.

Between August 2011 and August 2010 energy supply rose by 2.1 per cent. Electricity supply increased by 4.4 per cent and Gas supply decreased by 4.6 per cent.

Water and waste management

Water and waste management fell by 0.2 per cent on the month and on a month a year ago.

Production in detail

The Index of Production (IoP) measures the output of the production industries in the United Kingdom. Figures are adjusted for seasonal variations unless otherwise stated and the reference year is 2008 = 100. For an explanation of the terms used in this bulletin, please see the Background Notes section. Care should be taken when using the month on month growth rates due to their volatility. An assessment of the quality of the production statistics is available in the background notes.

Sector analysis

Mining and quarrying

The seasonally adjusted index of mining and quarrying in August 2011 fell by 14.5 per cent compared with August 2010. In particular:

i) oil and gas extraction decreased by 18.0 per cent;

ii) the largest contributor to the 14.5 per cent year on year fall in overall mining and quarrying was approximately 15.4 percentage points from oil and gas extraction.

Manufacturing

The seasonally adjusted index of manufacturing in August 2011 rose by 1.5 per cent compared with August 2010. In detail:

i) output increased in eight of the 13 manufacturing sub-sectors and fell in five sub-sectors;

ii) the largest increases in output were in the food, beverages & tobacco industries which rose by 4.8 per cent and machinery and equipment industries which rose by 8.3 per cent;

iii) within the food, beverages & tobacco industries, the main rises were in the manufacture of alcoholic beverages (32.2 per cent) and the manufacture of bakery and farinaceous products (7.0 per cent);

iv) the machinery and equipment industries solely consists of the manufacture of machinery & equipment not elsewhere classified (8.3 per cent);

v) the largest contributors to the 1.5 per cent year on year rise in overall manufacturing were approximately 0.9 percentage points from the food, drink and tobacco industries and approximately 0.6 percentage points from the machinery and equipment industries.

Energy supply

The seasonally adjusted index of the electricity, gas, steam and air conditioning supply industries in August 2011 rose by 2.1 per cent compared with August 2010. The main movements were:

i) electric power generation, transmission and distribution increased by 4.4 per cent;

ii) gas; distribution of gaseous fuels through mains; steam and aircon supply decreased by 4.6 per cent;

iii) the largest contributor to the 2.1 per cent year on year rise in overall electricity, gas, steam and air conditioning supply was approximately 3.3 percentage points from electric power generation, transmission and distribution.

Water supply and waste management

The seasonally adjusted index of the water supply, sewerage and waste management industries in August 2011 fell by 0.2 per cent compared with August 2010. The main movements were:

i) waste collection, treatment and disposal decreased by 1.6 per cent;

ii) water collection, treatment and supply decreased by 0.9 per cent;

iii) the largest contributor to the 0.2 per cent year on year fall in overall water supply, sewerage and waste management was approximately 0.6 percentage points from waste collection, treatment, and disposal.

Revisions

This release conforms to the standard revisions policy for National Accounts. In this release, periods from January 1997 are open for revision.
When analysing revisions the user should be aware that the indices they are comparing are based on two different classifications. The note Index of Production - Improvements Introduced from October 2011, highlights some of the main differences between the SIC 2003 classification and the SIC 2007 classification. The article also makes reference to other improvements introduced this month including updating the last base year by two years to 2008 and improving the method of deflation. In addition to this the Index of Production has also undergone its annual review of its seasonal models. These improvements will all have contributed to revisions seen in the back series.
Due to comparability issues with the majority of aggregates in the IOP5R revisions table, it has been temporarily removed from the publication and will next appear in the September 2011 publication. A revisions analysis for the high level Index of Production and Manufacturing aggregates can be seen in the Revisions Triangles. (1.26 Mb ZIP)

Impact on GDP

Revisions to Index of Production data up to and including 2011 quarter two were included in the Quarterly National Accounts publication released on the 5th October 2011.

Summary statistics

RFT Summary stats Aug 2011 (34.5 Kb Excel sheet)

Background notes

1. What's new?

   In accordance with the National Accounts revision policy, the current revisions period is open back to January 1997. Revisions have resulted from new deflation methodology, rebasing data and introduction of 2007 UK Standard Industrial Classification System (SIC07).

   This is the first Index of Production publication to be released in accordance with the 2007 UK Standard Industrial Classification System (SIC 07).  The reference year has also been moved forward by two years, so that the latest base year for the chained volume measure of IoP is 2008.  Further information can be found on the website at:

   Bluebook 2011: Improvements to GDP(O), IoS and IoP

   From this release, Index of Production produces the statistical bulletin and tables in accordance with the 2007 UK Standard Industrial Classification System (SIC07).

   Upcoming changes

   The index of Production release for September 2011 will have a revisions period back to July 2011. 

2. Code of Practice for Official Statistics

   National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference. © Crown copyright 2011.

3. Understanding the data

   Short Guide to the Index of Production
   This Statistical Bulletin gives details of the index of output of the production industries in the United Kingdom. Index numbers of output in this Statistical Bulletin are on the base 2008=100 and are classified to the 2007 Standard Industrial Classification (SIC). The production industries, which accounted for 15.4 per cent of gross domestic product in 2008, cover mining and quarrying (Sector B), manufacturing (Sector C), gas and electric (Sector D), and water supply and sewerage (Sector E).

   Interpreting the data
   The non-seasonally adjusted series contain elements relating to the impact of the standard reporting period, moving holidays and trading day activity. When making comparisons it is recommended that users focus on seasonally adjusted estimates as these have the seasonal effects and systematic calendar related components removed. 
   Figures for the most recent months are provisional and subject to revision in light of (a) late responses to surveys and administrative sources and (b) revisions to seasonal adjustment factors which are re-estimated every month and reviewed annually (changes from the latest review are included in this release).
   
   

   Definitions and explanations
   Definitions found within the main statistical bulletin are listed here:

   • Chained volume measure
     An index number from a chain index of quantity. The index number for the reference period of the index may be set equal to 100 or to the estimated monetary value of the item in the reference period.

   • Index Number
     A measure of the average level of prices, quantities or other measured characteristics relative to their level for a defined reference period or location. It is usually expressed as a percentage.

   • Seasonally adjusted
     Seasonal adjustment aids interpretation by removing effects associated with the time of the year or the arrangement of the calendar, which could obscure movements of interest.

   
   
    Use of the data

   The ONS work programme consultation which ended in December looked at customers views on how ONS could address customers’ needs within a reducing budget.

4. Methods

   A link to the Index of Production methodology can be found here (42.7 Kb Pdf) .

   Composition of the data
   The Index of Production uses a variety of different data from sources which are produced on either a quarterly or monthly basis.

   Most of the indicators are derived using current price turnover deflated by a suitable price index. This includes the Monthly Business Survey (MBS) data; an ONS short term survey on different sectors of the economy. It is one of the main data sources used in the compilation of the Index of Production.

   Seasonal adjustment
   The index numbers in this Statistical Bulletin are all seasonally adjusted. This aids interpretation by removing annually recurring fluctuations, for example, due to holidays or other regular seasonal patterns. Unadjusted data are also available.

   Seasonal adjustment removes regular variation from a time series. Regular variation includes effects due to month lengths, different activity near particular events such as shopping activity before Christmas, and regular holidays such as the May bank holiday. Some features of the calendar are not regular each year, but are predictable if we have enough data - for example the number of certain days of the week in a month may have an effect, or the impact of the timing of Easter. As Easter changes between March and April we can estimate its effect on time series and allocate it between March and April depending on where Easter falls. Estimates of the effects of day of the week and Easter are used respectively to make trading day and Easter adjustments prior to seasonal adjustments.
   
   Deflation
   It is common for the value of a group of financial transactions to be measured in several time periods. The values measured will include both the change in the volume sold and the effect of the change of prices over that year. Deflation is the process whereby the effect of price change is removed from a set of values.

   All series, unless otherwise quoted, are measured at constant basic prices. Deflators adjust the value series to take out the effect of price change to give the volume series.
   

5. Quality

   Basic quality information
   Common pitfalls in interpreting series: Expectations of accuracy and reliability in early estimates are often too high. Revisions are an inevitable consequence of the trade off between timeliness and accuracy. Early estimates are based on incomplete data.

   Very few statistical revisions arise as a result of ‘errors’ in the popular sense of the word. All estimates, by definition, are subject to statistical ‘error’ but in this context the word refers to the uncertainty inherent in any process or calculation that uses sampling, estimation or modelling. Most revisions reflect either the adoption of new statistical techniques, or the incorporation of new information which allows the statistical error of previous estimates to be reduced. Only rarely are there avoidable ‘errors’ such as human or system failures, and such mistakes are made quite clear when they do occur.

   Summary quality report
   A summary quality report (130.1 Kb Pdf) for this Statistical Bulletin can now be found on the National Statistics website.

   The 2005 median annual growth of MPI turnover, their associated standard errors and quality bands can now be found on the National Statistics website here.

   National Accounts revisions policy
   Figures for the most recent months are provisional and subject to revision in light of (a) late responses to the Monthly Business Survey MBS (previously the Monthly Production Inquiry MPI) and (b) revisions to seasonal adjustment factors which are re-estimated every period.

   In the next bulletin, which will contain figures for September 2011 and will be published on 8 November 2011, the period open for revision will be from July 2011.

   National Accounts revision policy can be found here.

   Revision triangles
   One indication of the reliability of the key indicators in this bulletin can be obtained by monitoring the size of revisions. The table below is based on the revisions which have occurred over the last five years. Please note that these indicators only report summary measures for revisions. The revised data may, themselves, be subject to sampling or other sources of error.
   The table below presents a summary of the differences between the first estimates published between September 2005 and August 2010 and the estimates published 12 months later.

   Revisions August 2011

   Revisions between first publication and estimates produced 12 months later (percentage points)

   Growth rates	Value in latest period	Average	Absolute average
   Production - 3 month	0.2	-0.06	0.25
   Manufacturing - 3 month	0.4	-0.09	0.32
   Production - 1 month	0.2	-0.06	0.25
   Manufacturing - 1 month	-0.3	-0.04	0.27

   Table source: Office for National Statistics

   Table notes:

   1. Averages shown are over the most recent five years. The absolute average is the average over the most recent five years without regard to sign.

   Download table

   • XLS format
     (14 Kb)

   Spreadsheets giving revisions triangles (1.26 Mb ZIP) of estimates for all months from December 1997 through to the current month, and the calculations behind the averages in the above table, are available on the National Statistics website.

   A statistical test has been applied to the average revisions to find out if they are statistically significantly different from zero. No such differences have been found.

   The table uses historical data for the most recent 60 months, comparing the estimate at first publication with the estimate as published 12 months later. The numbers which underpin these averages will include normal changes due to late data and re-seasonal adjustment, but also significant methodological changes, the most recent being the introduction of the 2007 Standard Industrial Classification this month.

6. Publication policy

   Details of the policy governing the release of new data are available from the press office. Also available is a list of those given pre-publication access (39.7 Kb Pdf) to the contents of this release.
   A complete set of series in the Statistical Bulletin are available to download free of charge on the Data section of the National Statistics website. Alternatively, for low-cost tailored data, call Online Services on 02075335675 or email tailored@statistics.gov.uk.

7. Accessing data

   The complete run of data in the tables of this Statistical Bulletin is also available to view and download in electronic format free of charge using the ONS Time Series Data service. Users can download the complete bulletin in a choice of zipped formats, or view and download their own selections of individual series.

   ONS provides an analysis of past revisions in the IoP and other Statistical Bulletins (previously known as First Release) which present time series. Details can be found here.

   ONS now publishes revisions triangles for all the main published key indicators on the National Statistics website.

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9. Next publication:  Tuesday 8 November 2011
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    These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.