Index of Production, UK: July 2019

Movements in the volume of production for the UK production industries: manufacturing, mining and quarrying, energy supply, and water and waste management. Figures are seasonally adjusted.

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This is an accredited national statistic.

Contact:
Email Sian Cross

Release date:
9 September 2019

Next release:
10 October 2019

1. Main points

  • Production output fell by 0.5% for the three months to July 2019, compared with the three months to April 2019; falls in manufacturing (1.1%) and mining and quarrying (1.2%) were partially offset by rises in electricity and gas (2.8%) and water and waste (1.7%).

  • The three-monthly fall in manufacturing of 1.1% is because of widespread weakness with 11 of the 13 subsectors decreasing; this was led by food, beverages and tobacco (2.4%) and chemicals and chemical products (4.8%).

  • Production output rose by 0.1% between June 2019 and July 2019; manufacturing provided the largest upward contribution (0.3%), supported by water and waste (1.1%) and partially offset by falls in electricity and gas (1.4%) and mining and quarrying (1.2%).

  • Monthly manufacturing output highlights a mixed picture with 7 of the 13 subsectors rising, led by basic pharmaceutical products, which increased by 3.8%.

  • For the three months to July 2019, production output decreased by 0.3%, compared with the same three months to July 2018; this was because of a fall in manufacturing of 0.7%, which was partially offset by rises from mining and quarrying (1.7%) and water and waste (0.7%).

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2. Things you need to know about this release

This July 2019 release contains no revisions and is consistent with the National Accounts Revisions Policy.

Further to this release, the quarterly national accounts published on 30 September 2019 will include the annual updates from the Blue Book and Pink Book 2019 (published 31 October 2019). This will contain revised production data from January 1997 to June 2019. These revised data will also 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 Index of Production (IoP) is an important economic indicator and one of the short-term measures of economic activity in the UK. It is used in the compilation of gross domestic product (GDP); the production industries’ weight accounts for 13.8% of the output approach to the measurement of GDP.

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

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.

Blue Book 2019

Each year, we produce an annual update to the UK National Accounts in the Blue Book and Pink Book and the associated releases. The Blue Book and Pink Book 2019-consistent datasets will be published on 30 September 2019.

Details have already been provided on the scope in the article, Latest developments and changes to be implemented in Blue Book and Pink Book 2019. Indicative impacts on headline GDP components for the years 1997 to 2016 were published on 27 June 2019 in the article Blue Book 2019 indicative impacts on GDP current price and chained volume measure estimates: 1997 to 2016.

This year, owing to the very demanding set of changes being put through in the annual update, we are going to make an exception and are not going to fully reconcile 2017 annual data. Instead, we will produce an indicative balance to allow further time for final quality assurance of the data.

Consequently, the reference year and last base year for all chained volume measure series will remain as 2016.

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3. Production in detail

Figure 1 shows that growth for the Index of Production (IoP) and Index of Manufacturing (IoM) was more pronounced from the beginning of 2010, as the economy recovered, before a downturn during 2012. Production and manufacturing output have risen since then but remain 7.1% and 3.1% lower, respectively, for July 2019 than the pre-downturn peak in February 2008.

For further detail on the longer-term trend within manufacturing, please see an article titled Manufacturing sector performance, UK: 2008 to 2018, which was published on 2 April 2019. This provides an overview of the changes in the manufacturing sector between 2008 and 2018, focusing on the industries that have grown or shrunk the most.

Table 1 shows the growth rates and contributions for the IoP and production sectors for July 2019.

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4. What is contributing to the three-monthly decrease?

Total production output for the three months to July 2019 decreased by 0.5%, compared with the three months to April 2019. This is the second consecutive three-monthly decline and is mainly because of a fall of 1.1% in manufacturing output.

The fall in manufacturing follows a decline of 2.3% during the three months to June 2019. For the three months to July 2019, 11 of the 13 subsectors displayed negative contributions (Figure 2), led by:

  • widespread weakness within food products, beverages and tobacco, which fell by 2.4%, mainly because of a weakness during May 2019 and June 2019

  • chemicals and chemical products, which fell by 4.8%, owing to all six industries decreasing

  • wood and paper products and printing, which fell by 3.2%, with all three industries decreasing

Partially offsetting the overall three-monthly decline in manufacturing is a rise of 3.0% in transport equipment led by strength within motor vehicles, trailers and semi-trailers, which rose by 6.3%. However, this strength is mainly because of a partial bounce-back effect during May 2019, following a very weak April 2019. Users should also note the longer-term decline within this industry, highlighted in previous releases and reflected in the three months on the same three months a year ago growth, which fell by 7.3%.

Mining and quarrying output decreased by 1.2%, mainly because of a fall of 1.1% in oil and gas extraction, supported by a reduction in output from other mining and quarrying, which fell by 1.4%.

The increase of 2.8% within electricity and gas supply was driven by equal upward contributions from electricity generation and distribution and gas distribution, which rose by 2.0% and 5.1% respectively.

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5. What is contributing to the month on previous month increase?

Following a decline of 0.1% in June 2019, monthly total production output rose by 0.1% in July 2019, owing to rises in manufacturing of 0.3% and water and waste of 1.1%. These were partially offset by falls from electricity and gas of 1.4% and mining and quarrying of 1.2%.

Growth within manufacturing during July 2019 showed a mixed picture, with 7 of the 13 subsectors displaying increased output. Notable strength came from two industries that tend to be volatile:

  • pharmaceutical products (3.8%); following two strong monthly growths

  • the weapons and ammunition industry, which rose by 12.1%, owing to the completion of high-value contracts

Across the rest of manufacturing, much of the low-level strength displayed in July 2019 is the result of a bounceback effect following a weak June 2019.

Partially offsetting the overall strength and providing the largest downward contribution within manufacturing was chemical and chemical products, which fell by 3.1%. This was mainly because of weakness within petrochemicals and soap detergents and cleaning products, which fell by 6.3% and 4.7% respectively.

The fall in electricity and gas output provides the largest downward contribution and is generally because of a reduced demand owing to a rise in temperature during July 2019. The Met Office reported that the provisional UK mean temperature was 16.4 degrees celsius, which is 1.2 degrees celsius above the 1981 to 2010 long-term average.

The decrease in mining and quarrying of 1.2% is driven by reduced output within oil and gas extraction, which fell by 2.5%.

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6. What is contributing to the three month on same three month a year ago decrease?

Total production output for the three months to July 2019 decreased by 0.3%, compared with the same three months to July 2018.

Providing the only downward contribution was manufacturing, which fell by 0.7%, despite only 5 of the 13 subsectors decreasing.

Within manufacturing and providing the largest downward contribution was transport equipment, which fell by 4.0%. This was mainly because of the ongoing decline in the production of motor vehicles, trailers and semi-trailers, which fell by 7.3%.

Also providing notable downward contributions were machinery and equipment, which fell by 4.7%, a continuation of ongoing weakness since August 2018, and other manufacturing and repair, which fell by 2.9%, driven by a strong fall of 28.3% from repair and maintenance of aircraft and spacecraft, which is a continuation of weakness since May 2018.

Partially offsetting the overall weakness in manufacturing was notable strength from electrical equipment (12.2%) and computer, electronic and optical products (4.5%).

Providing the largest upward contribution was mining and quarrying, which rose by 1.7%, mainly because of widespread strength within other mining and quarrying (2.8%) and oil and gas extraction (1.2%), a continuation of strength where an expansion in oil and gas fields coming online at the end of 2017 has steadily increased production from that point.

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8. Quality and methodology

The Index of Production (IoP) measures the UK output in the mining and quarrying; manufacturing; energy supply; and water supply and waste management industries. The IoP estimates are based mainly on data from the Monthly Business Survey (MBS).

In addition, from the Index of Production, UK: November 2017 bulletin published in January 2018, Value Added Tax (VAT) data have been included across 64 production industries for small- and medium-sized businesses. For further information concerning the use of VAT turnover within the UK National Accounts, please see VAT turnover data in National Accounts: background and methodology (published on 19 March 2018).

On 11 April 2019, we published the Quality assurance of administrative data (QAAD) report for Value Added Tax turnover data. This looks at how we compile and use VAT data in the short-term economic output indicators.

On 11 October 2018, we published an article on the future uses of VAT as part of the economic review, which considers the strategic collection model for administrative and survey data for short-term indicators, including the IoP.

For the mining and quarrying; energy supply; coke and refined petroleum; and basic iron and steel sectors, we receive volume data from the Department for Business, Energy and Industrial Strategy (BEIS) and the International Steel Statistics Bureau (ISSB). Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data.

The MBS turnover in production industries dataset produces the proportion of turnover from exports by industry and level of turnover and exports (£ millions). However, this is not always comparable with UK trade statistics, for many reasons. These include, but are not limited to:

  • different data sources – the MBS is based on a survey of businesses; the UK trade in goods data uses administrative data collected by HM Revenue and Customs (HMRC)

  • different concepts being measured – the MBS reports the value of exports as a proportion of the industry’s turnover; the UK trade in goods data report the change in ownership between the UK and other countries

  • time lag – there can be time lags between the sale of a product reported in the MBS and the movements of that product reported by UK trade in goods

Further information on UK trade and how data on it are compiled can be found in the Things you need to know about this release section of the UK trade release.

The data collected on the MBS are turnover excluding VAT and exports for some applicable industries. The data collected on the VAT returns are also turnover excluding VAT. These data are then deflated using Producer Price Indices (PPI). Within the manufacturing sector, we also receive direct volume data from the BEIS for fuel industries and from the ISSB for steel industries.

The mining and quarrying sector is comprised mainly of data from the BEIS, including volume of oil and gas extraction and coal extraction. The data used to produce the energy sector are also from the BEIS and include energy and gas supply output. A comprehensive list of the IoP source data can be found in the Gross domestic product (GDP(O)) source catalogue (XLS, 715KB).

Revisions to the IoP 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

  • HMRC VAT returns replacing MBS data for small- and medium-sized businesses when VAT estimates become available every quarter

Within the suite of datasets published monthly alongside this release, you will find:

The IoP Quality and Methodology Information report contains summary information and 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

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Contact details for this Statistical bulletin

Sian Cross
indexofproduction@ons.gov.uk
Telephone: +44 (0) 1633 582582