The Index of Services is estimated to have increased by 3.2% in February 2015 compared with February 2014. All of the 4 main components of the services industries increased in the most recent month compared with the same month a year ago
The largest contributions came from: business services and finance, which contributed 1.4 percentage points to total growth; and distribution, hotels and restaurants, which contributed 0.9 percentage points to total growth
The latest Index of Services estimates show that output increased by 0.3% between January 2015 and February 2015, following a contraction of 0.2% between December 2014 and January 2015
The figures within this release are estimates and are on a seasonally adjusted basis. The earliest period open for revision in this release is January 2015
About the IoS
The monthly IoS provides a timely indicator of growth in the output of the services industries. The IoS is an important economic indicator and shares exactly the same industry coverage as the corresponding quarterly series with UK gross domestic product (GDP). The primary purpose of the IoS is to produce a short-term measure of the output of the services industries within the UK economy and show the monthly movements in the gross value added (GVA) of the service industries (2007 Standard Industrial Classification (SIC 2007) sections G to T). The 4 main components of the services industries are: distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services. The IoS is the largest contributor to the output approach to the measurement of GDP, accounting for 78.4% of UK GDP as at 2011.
All data in this bulletin are seasonally adjusted estimates and have had the effect of price changes removed (in other words, the data are deflated). Further information on some of the main concepts (including seasonal adjustment and deflation) underlying the estimates can be found in background note 11.
The quality of the IoS
The IoS is published around 8 weeks after the end of the reference month. There is no simple way of measuring the accuracy of the IoS, that is, the extent to which the estimate measures the underlying "true" value of the output growth (of the services industries) in the UK for a particular period. All estimates, by definition, are subject to statistical uncertainty and for many well-established statistics the Office for National Statistics (ONS) measures and publishes the sampling error associated with the estimate, using this as an indicator of accuracy. The IoS however, is constructed from a wide variety of data sources, some of which are not based on random samples. As a result ONS does not publish a measure of the sampling error associated with the IoS.
Reliability is one dimension of measuring accuracy using evidence from analyses of revisions to assess the closeness of early estimates to subsequent estimated values. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy. Figures for the most recent months are provisional and subject to revision in light of:
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
Revisions to the IoS are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal. More information on the most recent revisions analysis can be found in the component analysis section and in background note 16.
It should be noted that care should be taken when using the month-on-month growth rates, due to their volatility (see background note 10).
Further information on the quality of the IoS (29 Kb Pdf) is available in the Quality of the IoS report on the Index of Services Methods web page on our website. It should be noted that as part of the IoS industry review process, ONS is continually working on methodological changes to improve the accuracy of the IoS.Back to table of contents
Table 1: Index of Services main information, February 2015
|Index number (2011=100)||Most recent month on a year earlier||Most recent 3 months on a year earlier||Most recent month on previous month||Most recent 3 months on previous 3 months|
|Index of Services||109||3.2||3.3||0.3||0.7|
|Source: Office for National Statistics|
Download this table Table 1: Index of Services main information, February 2015.xls (54.3 kB)
The Index of Services (IoS) measures the quantity of output from all UK services industries, which account for more than three-quarters of the output approach to the measurement of gross domestic product. Index values are presently referenced to 2011 so that the average for 2011 is equal to 100. Therefore, an index value of 110 would indicate that output is 10% higher than the average for 2011.
As seen in Figure 1, the IoS increased by 3.2% in February 2015 compared with February 2014. In order of their contribution to growth (see reference table IOS1): business services and finance increased by 3.4%; distribution, hotels and restaurants increased by 4.8%; transport, storage and communication increased by 5.2%; and government and other services increased by 0.9%.
Further detail on these movements can be found in the component analysis section.
Between January 2015 and February 2015, as seen in Figure 2, the IoS increased by 0.3%. All of the 4 main components of the services industries increased in the most recent month compared with the previous month. In order of their contribution to growth (see reference table IOS1): government and other services increased by 0.3%; business services and finance increased by 0.2%; distribution, hotels and restaurants increased by 0.3%; and transport, storage and communication increased by 0.4%.
More detail on individual components can be found in the IOSCOMP tables in the data section of this bulletin. The tables also provide information on the growth for the 3 months ending in February 2015 compared with the previous 3 months and compared with the 3 months ending February 2014.
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Total services grew by 3.2% between February 2014 and February 2015.
Historically, the services industries have grown at a faster rate than all other headline industries. While GDP has grown at an average annual rate of 2.0% since 1997, services has grown at an average annual rate of 2.8%. This has led to a continuing re-orientation of the economy towards services, despite productivity in the services industries rising more slowly than in the production industries (and manufacturing in particular) since 1997 (more information can be found in the Labour Productivity, Q4 2014 release). The higher output growth therefore reflects the increasing share of the labour force employed in services, which grew from 73% to 79% between 1997 and 2014 (see Labour Market Statistics, April 2015 release, reference table EMP13).
In addition to a strong long run performance, the services industries were also least affected by the downturn in 2008 and they recovered quickly after. They are mainly responsible for the recovery of the economy as a whole, being the only industry grouping to have surpassed its pre-downturn peak.
However, growth within services has varied, with Figure 3 showing a clear divide between the growth rates of the 4 main industry groupings since 1997. The industry grouping which has grown the most over this period is transport, storage and communication, despite being one of the hardest hit during the 2008 downturn. Much of this growth came from telecommunications and computing, coinciding with advancement in technology in these industries over the period. Business services and finance has also been an important contributor of growth in services. This industry grouping, along with transport, storage and communication, has nearly doubled in size since 1997.
Growth in the remaining 2 industry groupings has been more modest, with neither of them growing as much as overall GDP since 1997. The distribution, hotels and restaurants industry grouping has seen similar movements to GDP, whereas growth in government and other services has been slower and more stable, even during the economic downturn.Back to table of contents
With a weight of 78.4%, the services industries are the largest industrial grouping in the output approach to measuring GDP. The releases for the short-term economic indicators that feed directly into the output approach to measuring GDP include a table detailing growth in the 4 main industrial groupings (Table 2). This will aid understanding of the relationship between the individual short-term releases and GDP output.
In Quarter 1 (Jan to Mar) 2015, GDP was estimated to have increased by 0.3% compared with the previous quarter. The contribution an industry grouping makes to the GDP quarterly growth is dependent on the quarterly change in that industry grouping and its weight within the output approach to measuring GDP.
Monthly estimates are produced for each industrial grouping except agriculture. The February 2015 estimates for production and construction were published on 10 April. The Gross Domestic Product Preliminary Estimate for Quarter 1 (Jan to Mar) 2015 was published on 28 April 2015 alongside this bulletin.
Table 2: GDP output component tables, Quarter 1 (Jan to Mar) 2015, chained volume measure, seasonally adjusted
|Publication||% of GDP||Release date||Month of GDP||Most recent 3 months on a year earlier||Most recent 3 months on 3 months earlier||Most recent month on the same month a year ago||Most recent month on the previous month|
|Index of Production||14.6||10 Apr||Feb||0.7||-0.2||0.1||0.1|
|Construction output||6.4||10 Apr||Feb||0.3||-3.2||-1.3||-0.9|
|Index of Services||78.4||28 Apr||Feb||3.3||0.7||3.2||0.3|
|Retail Sales||23 Apr||Mar||5.2||0.9||4.2||-0.5|
|Source: Office for National Statistics|
|1. No data represented by ..|
Download this table Table 2: GDP output component tables, Quarter 1 (Jan to Mar) 2015, chained volume measure, seasonally adjusted.xls (56.3 kB)
Table 3: Growth rates and contributions(1) to the Index of Services, February 2015
|Description||% of Services||Month on a year earlier Volume (SA2) (%)||Contribution to services (% points)||Month-on-month growth Volume (SA) (%)||Contribution to services (% points)|
|Total services industries||100||3.2||3.2||0.3||0.3|
|Distribution, hotels and restaurants||18||4.8||0.9||0.3||0.1|
|Transport, storage and communication||13||5.2||0.7||0.4||0.1|
|Business services and finance||39||3.4||1.4||0.2||0.1|
|Government and other services||30||0.9||0.3||0.3||0.1|
|Source: Office for National Statistics|
|1. Individual contributions may not sum to the total due to rounding|
|2. SA = seasonally adjusted|
Download this table Table 3: Growth rates and contributions(1) to the Index of Services, February 2015.xls (27.1 kB)
Distribution, hotels and restaurants
The index of distribution, hotels and restaurants increased by 4.8% in February 2015 compared with February 2014, following an increase of 5.3% in January 2015 compared with the same month a year earlier. The main contributors to the increase were: retail trade, except of motor vehicles and motorcycles, which rose by 5.4%; wholesale and retail trade and repair of motor vehicles and motorcycles, which rose by 6.4%; and wholesale trade, except of motor vehicles and motorcycles, which rose by 3.2%.
Transport, storage and communication
The index of transport, storage and communication increased by 5.2% in February 2015 compared with February 2014, following an increase of 4.2% in January 2015 compared with the same month a year earlier. The main contributors to the increase were: computer programming, consultancy and related activities, which rose by 8.5%; land transport, which rose by 7.6%; and publishing audiovisual and broadcasting activities, which rose by 3.9%.
Business services and finance
The index of business services and finance increased by 3.4% in February 2015 compared with February 2014, following an increase of 3.8% in January 2015 compared with the same month a year earlier. The main contributors to the increase were: other professional service activities, which rose by 7.3%; administrative and support services activities, which rose by 5.7%; and real estate activities, which rose by 1.8%.
Government and other services
The index of government and other services increased by 0.9% in February 2015 compared with February 2014, following an increase of 0.6% in January 2015 compared with the same month a year earlier. The main contributors to the increase were: human health and social work activities, which rose by 2.1%; and other service activities, which rose by 7.2%.
The Index of Services (IoS) follows the National Accounts Revisions policy (43.3 Kb Pdf). Revisions are caused by a number of factors including, but not limited to, revisions to source data due to late responses, actual data replacing forecast data and revisions to seasonal factors that are re-estimated every period. More information on IoS revisions is available on the Index of Services Methods page.
We produce revisions triangles of services 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 to 0. Further information can be found in background note 16.
In this release of data, the earliest period open to revision is January 2015. The growth rate for January 2015 compared with the same month a year earlier was unrevised from the previous estimate of 3.2% and the month-on-month growth rate for January 2015 compared with December 2014 (-0.2%) was also unrevised.
Further detail on the revisions to the IoS components can be found in the RIOS1 tables in the data section of this publication.Back to table of contents
Industry spotlight: food and beverage service activities
According to the Standard Industrial Classification 2007 (SIC2007), food and beverage service activities (industry 56) cover companies that operate ventures such as cafes, restaurants, or venues that are licensed to serve alcohol on premises. The defining trait for corporations in this industry is that they serve food or drink that is ready for immediate consumption; any companies selling food or drink which involves additional preparation by the consumer is included in wholesale or retail trade. Beverage serving activities (56.3), which includes the output of premises such as public houses and nightclubs, used to be the largest component of the industry but their importance has diminished over time (from 49% of total output in January 1997 to 35% in February 2015). Instead, restaurants and cafes (56.1) have increased in importance and now account for half of the turnover in the industry. Food and beverage service activities are included under the distribution, hotels and restaurants industry grouping within services.
Relative to the entire services industry, this industry has seen significantly lower growth since 1990 in volume terms. However, a clear outlier to this trend can be observed in 2012; output in this industry was particularly strong in this year, possibly reflecting significant sporting events such as the London Olympics. The industry is pro-cyclical, declining more than overall GDP in downturn years. Eating or drinking out might be considered to be discretionary spending by most households and therefore something they cut back on when confidence in the economy is weak.
This industry has grown more slowly than many other industries with a consumer focus, such as the retail trade. Part of the reason may be that prices for restaurants and other catering services have risen significantly more than the overall Consumer Price Index (CPI). While the CPI rose by 47% between January 1996 and March 2015, prices in catering services rose by 84% over the same period (more information can be found in the Consumer Price Inflation March 2015 release). This has meant that while in nominal terms, spending on catering services as a proportion of overall household expenditure fell from 9.0% in Quarter 1 (Jan to Mar) 1997 to 7.7% in Quarter 4 (Oct to Dec) 2014, in real terms this fall has been larger (more information can be found in Consumer Trends Q4 2014 release). The movement in prices could also explain why, despite lower growth in volume terms, the industry’s share of total services output has remained relatively stable, only falling from 2.6% in 1990 to 2.5% in 2014.
Food and beverage service activities tend to exhibit a strong degree of seasonality, with higher output in the summer months and large spikes in output in December. This pattern changes across the different sub-industries for example, growth in event catering (56.2) output is especially strong between May and July, possibly reflecting a preference for holding large events such as weddings in these months. The output of beverage serving activities is particularly strong in December, rising by 19% on average between November and December in the years 2002 to 2014, compared to 13% for the industry as a whole. The seasonal adjustment process removes these recurring fluctuations to aid interpretation of the general movement of the series.Back to table of contents
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