1. Main points

  • In the 3 months to May 2017 compared with the 3 months to February 2017, the Index of Production was estimated to have decreased by 1.2%, due mainly to falls of 1.1% in manufacturing and 3.5% in energy supply.

  • The largest contribution to the fall in manufacturing came from the highly volatile pharmaceutical industry along with a range of other industries while the fall in energy supply was due largely to warmer temperatures.

  • In the 3 months to May 2017 compared with the same 3 months a year ago, the Index of Production increased by 0.1%; this was due mainly to a rise of 0.9% in manufacturing where there were broad-based upwards contributions from most manufacturing industries.

  • In May 2017, total production was estimated to have decreased by 0.1% compared with April 2017, due to falls of 0.2% in manufacturing and 0.8% in energy supply; transport equipment provided the largest contribution to the manufacturing decrease, followed by food products, beverages and tobacco.

  • Total production output for May 2017 compared with May 2016 decreased by 0.2%, with energy supply providing the largest downward contribution, decreasing by 4.2% partially offset by manufacturing, increasing by 0.4%.

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2. Things you need to know about this release

On 15 June 2017, the National Statistician announced that pre-release access to Office for National Statistics publications would stop with effect from 1 July 2017. This is therefore the first IoP release where ministers and other officials did not receive access to the information prior to publication.

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 14.6% of the output approach to the measurement of GDP.

The IoP measures the UK output in the mining and quarrying; manufacturing; energy supply; and water supply and waste management industries. The IoP estimates are mainly based on the Monthly Business Survey (MBS) of approximately 6,000 businesses. For the mining and quarrying, and energy supply sectors, and two manufacturing industries namely coke and refined petroleum, and basic iron and steel, we receive volume data from the Department for Business, Energy and Industrial Strategy (BEIS) and the International Steel Statistics Bureau (ISSB) respectively. Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data. The current price non-seasonally adjusted estimates of industries collected by the MBS can be found in today’s (7 July 2017) publication of TOPSI: Production and services turnover.

As part of the Short-term Economic Indicators theme day, IoP produces the proportion of turnover from exports, by industry. Level of exports (£ millions) is published in TOPSI. However, this is not always comparable with UK trade statistics, for a number of reasons. These include, but are not limited to:

  • different data sources – IoP and TOPSI are based on a survey of businesses; UK Trade in Goods uses administrative data collected by HM Revenue and Customs (HMRC)
  • different concepts being measured – IoP 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 IoP and the movements of that product reported by UK trade

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

This release has a revisions period back to April 2017. Revisions can be made for a variety of reasons; the most common include:

  • late responses to surveys and administrative sources, or changes to original returns
  • forecasts being replaced by actual data
  • revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually

This revisions period is consistent with the National Accounts revisions policy.

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.

Summary information can be found in the Quality and Methodology Information report.

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3. Index of Production (IoP) main figures and the longer-term trend

Figures 1 and 2 show that both the Index of Production (IoP) and Index of Manufacturing (IoM) followed a broadly upward trend following the economic downturn. Growth was more pronounced from the beginning of 2010, as the economy recovered, before a slight downturn during 2012. Since then, both production and manufacturing output have risen steadily but remain well below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008, by 8.0% and 4.3% respectively in the 3 months to May 2017.

Table 1 shows the growth rates and contributions for the IoP and main sectors for May 2017. The monthly estimate of total production fell by 0.1%. There were falls in two of the four main sectors. The largest downward contribution came from manufacturing, falling by 0.2%.

The 3 months-on-previous 3 months estimate of total production fell by 1.2% in May 2017, with falls in three of the four main sectors. Manufacturing provided the largest downward contribution, falling by 1.1%.

We must also draw your attention to the index numbers and 3 months-on-same 3 months a year ago growth rates as these can more accurately reflect the longer-term trend to allow better interpretation of the statistics, see Output of the Production Industries (IOP5) publication tables.

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4. What is contributing to the 3 months-on-previous 3 months decrease?

In the 3 months‐on‐previous 3 months to May 2017, total production was estimated to have decreased by 1.2% (Table 2), the same as the decrease of 1.2% in the 3 months to April 2017.

There were falls in three of the four main sectors, with the manufacturing sector providing the largest downward pressure, falling by 1.1%. This was the largest fall since July 2015, when it also fell by 1.1%. The decrease in manufacturing is due mainly to the highly volatile pharmaceutical industry, which fell by 7.8%, following a decrease of 12.0% in the 3 months to April 2017. There was widespread weakness across the manufacturing sub-sectors in the 3 months to May 2017.

BEIS advised that the decrease in energy supply of 3.5% was largely caused by warmer-than-average temperatures during the months of March, April and May, at 1.8 degrees Celsius, 0.6 degrees Celsius and 1.7 degrees Celsius respectively, above the long-term average (according to the Met Office).

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5. What is contributing to the month-on-month decrease?

The monthly estimate of total production decreased by 0.1% in May 2017 (Table 3), following an increase of 0.2% in the previous month.

There were falls in two of the four main sectors. Manufacturing provided the largest downward pressure, decreasing by 0.2% following an increase of 0.2% in the previous month. Within this sector, transport equipment provided the largest downward contribution, falling by 2.3%; within this, motor vehicles, trailers and semi trailers fell by 4.4%, the largest fall since February 2016, when it fell by 5.8%.

The decrease of 0.8% in energy supply is due mainly to gas supply, which fell by 1.5%. BEIS have indicated that the fall in output is linked to the rise in temperature, with May 2017 the warmest May since 2008. Over the longer-term, demand in gas has increased as a result of increased gas use instead of coal for the purpose of generating electricity (BEIS Energy Trends, UK energy statistics).

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

Total production decreased by 0.2% in May 2017 compared with May 2016; two of the four main sectors provided downwards contributions (Table 4).

The largest downward contribution came from energy supply, which decreased by 4.2%, following a decrease of 6.1% in the previous period. Within this sector, electricity supply provided the largest downward pressure, falling by 3.9%.

Manufacturing output partially offsets the overall decrease on a year ago, increasing by 0.4%. There were increases in 8 of the 13 sub-sectors. The sub-sector providing the largest upwards contribution was machinery and equipment not elsewhere classified, which rose by 6.9%. Increased exports were reported by this industry in the Monthly Business Survey, published in Turnover in Production and Services Industries.

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8. What’s new?

In August 2017, we aim to publish further analysis of how the manufacturing sector has reacted to the devaluation of sterling evident since June 2016.

The Short-term indicators economic commentary was published alongside this release, presenting new information on economic conditions in May 2017, with data available for output in production, construction and the trade balance.

VAT turnover implementation into National Accounts: June Update was published on 1 June 2017. This update explains that the first use of VAT in the national accounts will be in the Quarterly National Accounts (July to Sept) 2017 and the Index of Services: Oct 2017 bulletins, which are both due for publication on 22 December 2017.

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9. Quality and methodology

The majority of data used to compile the manufacturing sector, and thus the Index of Production (IoP), is collected via the Monthly Business Survey (MBS). The MBS samples around 6,000 businesses every month. The data collected are turnover excluding Value Added Tax (VAT) and exports for some applicable industries. This data is then deflated using Producer Price Indices (PPI). Within the manufacturing sector we also receive direct volume data from BEIS for fuel industries and the International Steel Statistics Bureau for steel industries.

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

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

The TOPSI: Production and services turnover is published alongside this release, providing current price estimates for industries collected by the MBS.

The Index of Production Quality and Methodology Information document 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
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