This bulletin presents the monthly estimates of the Index of Production (IoP) for the United Kingdom production industries, May 2014. The IoP is one of the earliest indicators of growth and it measures output in the manufacturing (the largest component of production), mining & quarrying, energy supply and water supply & waste management industries. The production industries account for 15.2% of the output approach to the measurement of gross domestic product (GDP). IoP values are referenced to 2010 so that the 2010 average is equal to 100. Therefore, an index value of 110 would indicate that output is 10% higher than the 2010 average. The index estimates are mainly based on a monthly business survey (MBS) of approximately 6,000 businesses, covering all the territory of the UK without geographical breakdown. The total IoP estimate and various breakdowns are widely used in private and public sector institutions. Care should be taken when using the month on month growth rates due to their volatility. All figures contained within this release are seasonally adjusted estimates, unless otherwise stated. Table 1 shows the key figures for this release. Figure 1 shows the production and manufacturing series from February 2012 to May 2014. This release also presents the economic context to IoP, GDP impact and components, a supplementary analysis to the IoP and a background notes section for an assessment of the quality of the IoP, as well as an explanation of the terms used in this bulletin.
|Index number||Month on the same month a year ago||3 months on the same 3 months a year ago||Month on previous month||3 months on previous 3 months|
As seen in Figure 2, the pace of growth in manufacturing exceeded that of total production between 2003 and 2006. This trend however was temporarily interrupted following the economic downturn in 2008, where manufacturing fell by a greater extent than total production.
Following the 2008 downturn, total production and manufacturing returned to growth for a short period, before falling again in 2011 and 2012 (this coincided with falling GDP in the euro area). Total production was particularly affected, falling below its downturn trough in Q4 2012, while manufacturing fell by a smaller amount.
Conditions clearly improved throughout 2013 and have continued to do so in Q1 2014, with both production and manufacturing output rising by 0.7% and 1.5% compared with Q4 2013 respectively.
Recent divergences between manufacturing and total production can be primarily attributed to movements within the other sub-industry groupings that make up total production, primarily the mining and quarrying industries. Despite the industry only comprising approximately 15.1% of total production, its volatility and the overall downward trend (the industry has contracted in 13 out of the past 14 years) has provided downward pressure on total production. This can be predominantly attributed to North Sea oil and gas reserves becoming increasingly challenging to extract and ageing extraction equipment requiring extensive repairs and maintenance.
More recently, the Quarterly National Accounts confirmed that UK gross domestic product (GDP) grew by 0.8% in the first quarter of 2014, a fifth consecutive quarter of expansion. All four of the main industrial groupings experienced growth in output, with the services; production; construction and agriculture, forestry & fishing industries estimated to have grown by 0.8%, 0.7%, 1.5% and 1.0% respectively. The services industries continued to be the largest contributor to quarterly growth, with output in the latest quarter exceeding its pre-downturn peak, reached in 2008, by 1.9%. By contrast, output in both the production and construction industries remained more than 10% below their respective pre-downturn peaks.
The recent period of rising manufacturing output has coincided with easing price pressures in the manufacturing industry, both in terms of the prices manufacturers pay for materials and fuels used in the production process (input prices), and the prices they charge for the goods they produce (output prices). Both measures are published by ONS in the Producer Price Inflation bulletin. Input prices marked their seventh successive month of deflation in the year to May 2014, with a fall of 5.0% in prices. This recent period of falling input prices has coincided with low and stable output price inflation, which fell to 0.5% in the year to May 2014, from 0.6% in the year to April 2014.
Globally, the performance of manufacturing output has varied across G7 nations since the economic downturn of 2008; Japan experienced the largest initial fall in output (32%), in contrast the shallowest decline was in the UK (13%).
Following the 2008/09 economic downturn, all G7 nations’ manufacturing industries returned to growth. However, with the exception of the US, all members experienced further declines between the second half of 2012 and the first half of 2013, particularly in Italy. More recently, all members (excluding Germany as data were unavailable at time of writing) saw growth in manufacturing output in Q1 2014. Output however, remained below its respective pre-downturn peaks in these countries, with Italy, France and Japan remaining more than 10% below, whereas the UK remained 7.5% below. The USA was the member that has experienced the best performance on this measure, with output now just 2.6% below its pre-downturn peak.
More broadly, global economic conditions remain complex. The latest euro area quarterly GDP figures show that output grew by 0.2% in Q1 2014, a fourth successive quarter of expansion. However, as GDP contracted in every quarter between the end of 2011 and start of 2013, output remained 2.5% below the pre-downturn peak reached in Q1 2008. In contrast, US quarterly GDP contracted by 0.7% in Q1 2014, the first quarterly contraction since Q1 2011. Much of this fall however has been attributed to adverse weather conditions during the start of the year, with more recent official figures pointing towards a return to growth in many of the economy’s industries.
In this release, periods back to April 2014 are open for revision, in line with National Accounts revisions policy (43.3 Kb Pdf) .
The estimates for the production industries are generally the first of the main components for the output approach to the measurement of GDP to be published (agriculture, construction and services are the other components). All the components are already available for Q1 2014. Details of the data already published can be found in Table 2. The Retail Sales Index reported in Table 2 is not a direct component of the output measure of GDP. It does, however, feed into estimates of GDP in two ways. Firstly, it feeds into the services industries when GDP is measured from the output approach. Secondly, it is a data source used to measure household final consumption expenditure, which feeds into GDP estimates when measured from the expenditure approach.
Output in the construction industry for May 2014 will be published on 11 July 2014 and services output for the same period on 25 July 2014.
|Publication||% of GDP||Release date||Month / Quarter of GDP||Most recent quarter on a year earlier||Most recent quarter on quarter earlier||Most recent month on the same month a year ago||Most recent month on the previous month|
|Index of Production 1||15.2||8 Jul||May||..||..||2.3||-0.7|
|Construction output||6.3||13 Jun||Apr||..||..||4.6||1.2|
|Index of Services||77.8||27 Jun||Apr||..||..||3.1||0.3|
|Retail Sales||19 Jun||May||..||..||3.9||-0.5|
The data for the index of production reflect the latest revisions published as part of this release.
|Description||% of production||Month on same month a year ago growth (%)||Contribution to production (% points)||Month on previous month growth (%)||Contribution to production (% points)|
Headline figures for the Index of Production are:
Total Index of Production; Sector B Mining & quarrying; and within this Division 06 Oil & gas extraction; Sector C Manufacturing; Sector D Electricity, gas, steam & air conditioning; and Sector E Water supply, sewerage & waste management.
Source: Primarily Monthly Business Survey (Production and Services) - Office for National Statistics
As seen in Table 3, total production output in May 2014 increased by 2.3%, compared with May 2013. Manufacturing, the largest component of production, increased by 3.7%, compared with a year ago and contributed 2.6 percentage points to total production. The increase in manufacturing was followed by an increase in water supply, sewerage & waste management output, which increased by 2.3% and contributed 0.2 percentage points. These increases in production were partially offset by decreases in electricity, gas, steam & air-conditioning sector output, which decreased by 5.8% and contributed 0.5 percentage points and in the mining & quarrying industry, which decreased by 0.2% and had negligible contribution to total production.
Between April 2014 and May 2014, total production decreased by 0.7%, the largest fall since August 2013. This followed a rise in April of 0.3%, revised from a previously estimated increase of 0.4% (see Revisions to IoP section for further details). The decrease in total production reflected decreases of 1.3% in manufacturing, the lowest since January 2013, which contributed almost 1.0 percentage points to total production; and of 1.1% in water supply, sewerage & waste management output, which contributed 0.1 percentage points. These decreases were partially offset by increases of 3.8% in the electricity, gas, steam & air conditioning sector, which contributed 0.3 percentage points; and of 0.8% in mining & quarrying output, which contributed 0.1 percentage points to total production.
Manufacturing output increased by 3.7% between May 2013 and May 2014 and contributed 2.6 percentage points to total production growth. Outputs increased in nine of the 13 manufacturing subsectors (see Figures 4 and 5 for the contribution to production growth from each of the main sectors and subsectors). The largest upward contribution to manufacturing growth came from the manufacture of rubber, plastic products & other non-metallic mineral products. This subsector increased by 14.9%, and contributed 0.8 percentage points to the growth in production, having had a larger increase the previous month. The second largest contributor to manufacturing growth, compared with a year ago, was the manufacture of transport equipment. This subsector increased by 6.5% and contributed 0.6 percentage points (see Figure 4). This subsector was followed by food products, beverages & tobacco output, which increased by 3.8% and contributed 0.4 percentage points.
In contrast, the largest downward contributions to manufacturing came from the manufacture of basic pharmaceutical products & pharmaceutical preparations, which decreased by 5.9% and contributed 0.3 percentage points. This was followed by the manufacture of electrical equipment, which decreased by 7.0% and contributed 0.2 percentage points and by the manufacture of coke and refined petroleum, which decreased by 8.4% and contributed 0.1 percentage points.
Manufacturing output decreased by 1.3% between April 2014 and May 2014, and contributed 1.0 percentage points to the decrease in production. There were decreases in 10 of the 13 manufacturing subsectors (see Figure 5). The largest contributor was the manufacture of basic metals & metal products, which decreased by 2.3% and contributed 0.2 percentage points to total production. The second largest contributor to the decrease in manufacturing was the manufacture of basic pharmaceutical products & pharmaceutical preparations, which decreased by 3.6% and contributed 0.2 percentage points to total production. This was followed by the manufacture of computer, electronic & optical products, which decreased by 4.1% and contributed 0.2 percentage points.
In contrast to the above decreases, the largest upward contributions to the month on month fall in manufacturing output came from the manufacture of textiles, wearing apparel & leather products, which increased by 4.7% and contributed 0.1 percentage points, the highest since July 2010. Anecdotal evidence suggests that strong sales and contracts were contributory factors. This was followed by the manufacture of wood, paper products & printing, which increased by 0.9% and had a negligible contribution.
Mining & quarrying output decreased by 0.2% between May 2013 and May 2014, following a rise of 2.2% in the previous month (see Figure 4). This decrease reflected a fall of 1.5% in the extraction of crude petroleum & natural gas which contributed 0.1 percentage points, having had an increase in output the previous month. This was followed by a decrease in the mining of coal & lignite of 17.9% which had negligible contribution to total production. These decreases were partially offset by other mining & quarrying output, which increased by 3.6% and contributed 0.1 percentage points.
Mining & quarrying output increased by 0.8% in May 2014 compared with April 2014 and contributed 0.1 percentage points (see Figure 5) to total production, having had a decrease in the previous month. The largest contribution to the increase in mining & quarrying came from the extraction of crude petroleum & natural gas, which increased by 0.9% and contributed 0.1 percentage points. This was followed by increases in the mining of coal & lignite, which increased by 23.1% and by other mining & quarrying output, which increased by 0.1%, both with negligible contribution.
Electricity, gas, steam & air conditioning output decreased by 5.8% in May 2014 compared with May 2013 and contributed 0.5 percentage points to total production (see Figure 4). The decrease was in both of its subsectors and feedback suggests reduction in demand was a factor. The largest contributor to the decrease was the manufacture of gas & distribution of gaseous fuels through mains, which decreased by 14.6% and contributed 0.3 percentage points. This was followed by electric power generation, transmission & distribution, which decreased by 2.8% and contributed 0.2 percentage points.
Electricity, gas, steam & air conditioning output increased by 3.8% in May 2014 compared with April 2014 and contributed 0.3 percentage points (see Figure 5). The increase was in both of its subsectors and the largest contributor to the increase was electric power generation, transmission & distribution, which increased by 3.3% and contributed 0.2 percentage points. This was followed by the manufacture of gas & distribution of gaseous fuels through mains, which increased by 5.5% and contributed 0.1 percentage points.
Water supply, sewerage & waste management output increased by 2.3% between May 2013 and May 2014 and contributed 0.2 percentage points to production growth, with increases in all of its subsectors (see Figure 4). The largest contributor to the increase was the waste collection, treatment & disposal activities subsector, which increased by 3.6% and contributed 0.1 percentage points. The second largest was sewerage output, which increased by 2.2% and contributed 0.1 percentage points. This was followed by increases in water collection, treatment & supply, which increased by 0.4%; and in remediation activities & other waste management services output, which increased by 1.6% and both had negligible contributions.
Water supply, sewerage & waste management output decreased by 1.1% between April 2014 and May 2014, with decreases in all of its subsectors (see Figure 5). The largest contributor to the decrease was in the waste collection, treatment & disposal activities subsector, which decreased by 1.4% and contributed 0.1 percentage points. This was followed by decreases in sewerage output, which decreased by 1.3%; water collection, treatment & supply, which decreased by 0.3%; and remediation activities & other waste management services, which decreased by 3.4% and all had negligible contributions.
Revisions to the Index of Production follow the National Accounts Revisions policy (43.3 Kb Pdf) . Revisions are caused by a number of factors including the following, but not limited to: revisions to source data due to late responses to the Monthly Business Survey (MBS), actual data replacing forecast data and revisions to seasonal factors that are re-estimated every period. ONS produces revisions triangles of production and manufacturing growth to provide users with one indication of the reliability of this key indicator. Statistical tests are performed on the average revision to test if it is statistically significantly different from zero. Further information can be found in background note 5.
In this release of data, the earliest period open for revision is April 2014. The month on month growth rate for IoP in April 2014 was revised downwards by 0.1%. Further details on the revisions to IoP components can be found in the IoP5R tables, located within the data section of this release.
A report titled GDP Output Improvement Report was published on 29 May 2014. This report provides a detailed update of the work on industry reviews and wider improvements to IoP, IoS, GDPO and outlines the greater scope of the project as part of the GDP Continuous Improvement Programme.
A report titled The UK has one of the fastest growing economies in the G7 was published on 03 June 2014 explaining how the UK's economy compares to other countries.
On 4 July 2014, ONS published a short story describing how the pharmaceuticals industry has changed over time.
The Index of Production release for June 2014, to be published on Wednesday 06 August 2014, will have a revisions period back to April 2014.
The introduction of a new imputation method for the Monthly Business Survey (MBS), announced in last month's release, has been delayed pending further quality assurance. A new implementation date will be announced on completion of this work.
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.
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 2010=100 and are classified to the 2007 Standard Industrial Classification (SIC). The production industries, which accounted for 15.2% of gross domestic product in 2010, cover mining & quarrying (Section B), manufacturing (Section C), gas & electric (Section D), and water supply & sewerage (Section 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.
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.
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 IoP is a key economic indicator and one of the earliest short-term measures of economic activity. The main output is a seasonally adjusted estimate of total production and broad sector groupings of mining & quarrying, manufacturing, energy and water supply & sewerage. The total IoP estimate and various breakdowns are widely used in private and public sector institutions, particularly the Bank of England, Her Majesty’s Treasury and the Office for Budget Responsibility, to assist in informed policy and decision making.
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 series 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 of various industries in the economy. It is one of the main data sources used in the compilation of the Index of Production.
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.
Although leap years only happen every four years, they are predictable and regular and their impact can be estimated. Hence, if there is a leap year effect, it is removed as part of regular seasonal adjustment.
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 chained volume measures. Deflators adjust the value series to take out the effect of price change to give the volume series.
Basic quality information
A common pitfall in interpreting data is that 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.
ONS plans to update the IoP standard errors analysis last carried out in 2006 to take account of the new standard industrial classification (SIC07) which was implemented in 2011. This work is reliant upon the availability of expert resources, but it is hoped to begin this work in September 2014, with an estimated completion date of the end of March 2015.
Quality and methodology information report
A quality and methodology information report for this Statistical Bulletin can now be found on the ONS website.
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 following table presents a summary of the differences between the first estimates published between June 2008 and May 2013 and the estimates published 12 months later.
|Value in latest period||Revisions between first publication and estimates twelve months later|
|Growth rates||Average over the last 60 months||Average over the last 60 months without regard to sign (average absolute revision)|
|Production - 3 month||0.6||-0.20||0.32|
|Manufacturing - 3 month||1.1||-0.22||0.36|
|Production - 1 month||-0.7||-0.12||*||0.27|
|Manufacturing - 1 month||-1.3||-0.10||0.28|
Spreadsheets give revisions triangles (4.02 Mb ZIP) of estimates for all months from March 1998 through to the current month.
A statistical test has been applied to the average revisions to find out if they are statistically significantly different from zero. An asterisk (*) indicates if a figure has been found to be statistically significant from zero.
The result presented in Table 4 suggests that the average revision for our three monthly estimates is not statistically significantly different from zero and that there are small downward revisions for our production monthly estimates over twelve months. In other words, the initial estimates for any given period provide a good indication of the later IoP estimates once more data have become available.
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 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 in October 2011.
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 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 Office for National Statistics website. Alternatively, for low-cost tailored data, call Online Services on 0845 601 3034
or email Customer Contact Centre.
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 (244.6 Kb Pdf) which present time series. Details can be found on the Office for National Statistics website.
ONS publishes revisions triangles (65.8 Kb Pdf) for all the main published key indicators on the Office for National Statistics website.
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publication: Wednesday 6th August 2014
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