Index of Production, UK: October 2018

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:
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Release date:
10 December 2018

Next release:
11 January 2019

1. Main points

  • The rise of 0.3% in total production output for the three months to October 2018, compared with the three months to July 2018, is due primarily to rises of 1.8% in electricity and gas supply and 2.7% in mining and quarrying.

  • Three monthly total manufacturing output is flat, with growth in basic metals (1.7%) and transport equipment (1.2%), partially offset by a fall of 2.8% in pharmaceutical products.

  • In October 2018, total production output fell by 0.6%, compared with September 2018, due to a fall of 0.9% in manufacturing; this was partially offset by a 1.8% increase in mining and quarrying.

  • The monthly decrease in manufacturing output of 0.9% was due mainly to weakness from transport equipment, falling by 3.2% and pharmaceutical products, falling by 5.0%; 5 of the 13 manufacturing subsectors increased.

  • In the three months to October 2018, total production output increased by 0.1% compared with the same three months to October 2017, due primarily to a rise in manufacturing of 0.3%, which is the weakest growth in manufacturing output since October 2016.

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2. Things you need to know about this release

This October 2018 release contains no revisions to previously published data 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 production data from January 2017 to September 2018. The data that will be published on 21 December 2018 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 export price deflators within this release. The improvements incorporate some of the sample work we have been carrying out on the Export Price Index (EPI) 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 the quarterly national accounts later this month (21 December 2018). 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 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.

This release includes VAT data for Quarter 1 (Jan to Mar) 2018.

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.

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3. Production in detail

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 downturn during 2012. Production and manufacturing output have risen but remain 5.9% and 1.9% lower, respectively, in the three months to October 2018 than the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008.

Table 1 shows the growth rates and contributions for the IoP and sectors for October 2018.

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4. What is contributing to the three months-on-previous three months increase?

Total production output for the latest three months to October 2018 compared with the previous three months to July 2018, increased by 0.3%. This is the weakest three-monthly growth since July 2018, when output fell by 0.3%.

The current three-monthly growth is due primarily to rises in two of the four main sectors; a 1.8% increase in electricity and gas output and an increase of 2.7% in mining and quarrying.

The strength from electricity and gas supply is due to both subindustries increasing, led by gas supply, which rose by 3.8%, due mainly to the impact from warmer than average temperatures in the three months to July 2018 resulting in less demand. The Met Office reported that during July 2018, the provisional UK mean temperature was 17.3 degrees Celsius, which is 2.2 degrees Celsius above the 1981 to 2010 long-term average, making it provisionally the joint-second warmest July (alongside 1983, after 2006) in the series from 1910. As average temperatures fell for the three months to October 2018, demand for gas supply is subsequently higher, leading to increased output.

Mining and quarrying rose by 2.7%, the strongest three-monthly growth since a rise of 5.0% in May 2018. Growth is led by a 3.5% rise in oil and gas extraction, due mainly to a return to full production during October 2018, following periods of maintenance during August and September 2018.

Total manufacturing output remains flat at 0.0% to one decimal place for the latest three months to October 2018. Of the 13 subsectors within manufacturing, there are an equal number of upward and downward contributions, with one flat. Providing the largest upward contribution within manufacturing was basic metals and metal products, which rose by 1.7%, driven by a weak May 2018.

Also providing strength is transport equipment, rising by 1.2%, due mainly to a 12.3% increase in other transport equipment, driven by an increase in the manufacture of railway rolling stock. Providing supporting growth is a 0.5% increase from motor vehicles, trailers and semi-trailers. However, this is due mainly to weakness during May and June 2018 (see Section 5 for further detail).

In contrast, and providing the largest downward contribution in three-monthly manufacturing output, is basic pharmaceutical products, which fell by 2.8%. This is due primarily to strength during June 2018, driven by strong exports. However, it should be noted that growth within this subsector can be volatile.

Despite recent signs of a recovery in manufacturing output, the three-monthly growth to October 2018 is flat, following three consecutive periods of three-monthly growth during July, August and September 2018.

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

Monthly total production output decreased by 0.6% in October 2018. The weakness this month is due primarily to total manufacturing output decreasing by 0.9%.

Weakness within manufacturing is broad-based, with 8 of the 13 subsectors displaying negative contributions. Of these, the largest falls came from transport equipment (3.2%), basic pharmaceutical products (5.0%), chemicals and chemical products (1.6%), and wood, paper products and printing (1.0%).

Within transport equipment, the fall of 3.2% is driven by the manufacture of motor vehicles, trailers and semi-trailers, which fell by 6.6%, due in part to the impact of shutdowns (Figure 3).

We intend to publish a blog exploring recent developments in the motor trades and motor vehicles production industries in January 2019.

The fall of 5.0% in pharmaceutical products follows a rise of 3.9% last month, highlighting the volatility in this subsector.

There is very little strength across manufacturing, with the largest upward contribution from food, beverages and tobacco, which increased by 0.6%. The manufacture of grain mill products and bakery products contributed to the rise. The total fall in manufacturing output of 0.9% in October 2018, replicates the largest fall since April 2018.

Mining and quarrying increased by 1.8%, due mainly to a rise of 2.3% in oil and gas extraction, following a return to full output after maintenance shutdowns carried over from August 2018 into September 2018.

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6. What is contributing to the three months on same three months a year ago increase?

Total production output for the three months to October 2018 has increased by 0.1%, compared with the same three months to October 2017, with a 0.3% rise in total manufacturing output. The strength within manufacturing is attributed to 4 of the 13 subsectors rising. Overall, growth in this sector is therefore driven by notable increases from:

  • computer, electronic and optical products, at 11.9%
  • food products, beverages and tobacco, at 2.6%

The strength within computer, electronic and optical products is reflected by an increase of 8.2% in nominal total turnover growth for the three months to October 2018, compared with the same three months to October 2017, driven by large businesses.

Within food products, beverages and tobacco, there were notable upward contributions from three subindustries: soft drinks, mineral waters and bottled water, at 15.2%; bakery and farinaceous products, at 4.9%; and alcoholic beverages, at 2.1%. In these industries, there were increases in nominal total turnover growth for the three months to October 2018 compared with the same three months to October 2017.

The continued strength in both soft drinks and alcoholic drinks was due primarily to the impact of the sustained period of hot weather this summer. This was due to increased demand in July 2018 in particular.

Supporting the seasonally adjusted growth in total manufacturing output is a non-seasonally adjusted increase in nominal total manufacturing turnover of 2.0%. This was driven by an increase in nominal total manufacturing export and domestic growth of 3.5% and 1.3%, respectively, published today (10 December 2018) in our Monthly Business Survey turnover in production industries dataset alongside this release.

The three months on three months a year ago rate for manufacturing output displays growth for the 29th consecutive period, following a 0.1% fall in May 2016. However, it is helpful to understand the longer-term trend, which clearly shows that since growth peaked in November 2017 at 3.8%, output has slowed (Figure 4).

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7. Upcoming changes

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

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9. 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 as to the use of VAT turnover within the national accounts, please see VAT turnover data in National Accounts: background and methodology (published on 19 March 2018).

On 11 October 2018, we published an article on the future use 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 Index of Production.

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 Monthly Business Survey 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 – MBS 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 – 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 MBS 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 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 BEIS for fuel industries and from the International Steel Statistics Bureau for steel industries.

The mining and quarrying sector is comprised mainly of data from BEIS, including volume of oil and gas extraction and coal extraction. The data used to produce the energy sector are also from 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 Index of Production 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 Index of Production 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

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

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Contact details for this Statistical bulletin

Mark Stephens
indexofproduction@ons.gov.uk
Telephone: +44 (0) 1633 456387