Index of Services, UK: December 2018

• The services output increased by 0.4% in Quarter 4 (Oct to Dec) 2018 compared with Quarter 3 (July to Sept) 2018; following growth of 0.5% between Quarter 2 (Apr to June) 2018 and Quarter 3 2018.

• The professional, scientific and technical activities sector made the largest contribution to the quarter-on-quarter growth, contributing 0.15 percentage points.

• The Index of Services decreased by 0.2% between November 2018 and December 2018; the lowest monthly growth since February 2018.

• The wholesale, retail and motor trade sector was the main contributor to this month-on-month decrease, contributing negative 0.11 percentage points.

• In the three months to December 2018, services output increased by 1.9% compared with the three months ending December 2017; this was last higher in the three months to September 2017.

• This release gives the first annual Index of Services figure for 2018, which increased by 1.7% compared with 2017; this is the lowest annual services growth since 2011.

The monthly Index of Services (IoS) provides a timely indicator of growth in the output of the services industries. It is the largest contributor to the output approach to the measurement of gross domestic product (GDP), accounting for 79.6% of UK GDP in 2016. Also published today (11 February 2019) is the GDP first quarterly estimate, UK: October to December 2018.

This December 2018 release publishes updated and revised estimates from January 2018 onwards, and is consistent with the National Accounts Revisions Policy.

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 of services industries dataset, which was published alongside this release. Note that the MBS turnover of services industries dataset does not contain data from Value Added Tax (VAT) returns, which have been included in the IoS.

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.

The IoS is an important economic indicator and one of the earliest short-term measures of economic activity. It is used in the compilation of the national accounts and widely used by private and public sector institutions, particularly by the Bank of England and Her Majesty’s Treasury to assist in informed decision- and policy-making.

The UK Index of Services has been designated by the UK Statistics Authority as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Statistics.

During Quarter 4 (Oct to Dec) 2018, services output increased by 0.4%, following growth of 0.5% in Quarter 3 (July to Sept) 2018.

The professional, scientific and technical activities sector was the largest contributor to growth in Quarter 4 2018. It increased by 1.5% and contributed 0.15 percentage points. This sector has grown at a faster rate than total Index of Services (IoS) since Quarter 1 (Jan to Mar) 2015 and has seen positive growth in each consecutive quarter since Quarter 1 2016.

Figure 1 shows the quarter-on-quarter Index of Services (IoS) and the professional, scientific and technical activities seasonally adjusted index from Quarter 1 2015 to Quarter 4 2018.

Figure 2 shows the quarter-on-quarter contributions of the professional, scientific and technical activities sector along with the other IoS sectors for Quarter 4 2018.

There was widespread quarterly growth across the professional, scientific and technical activities sector, with six out of the eight industries increasing. The largest contributors were:

• activities of head offices and management consultants, which increased by 3.6%, contributing 0.06 percentage points

• advertising and market research, which increased by 3.8%, contributing 0.04 percentage points

• accounting and auditing activities, which increased by 2.2%, contributing 0.04 percentage points

Large businesses (greater than 250 employment) across all these industries were the main factor behind the quarterly increases.

Figure 3 shows the sectors that have contributed the most to quarterly growth from Quarter 4 2016 up to Quarter 4 2018. These were the professional, scientific and technical activities sector along with the wholesale, retail and motor trade, and information and communication sectors.

The professional, scientific and technical activities sector has seen consistent strong contributions to positive Index of Services growth since Quarter 2 (Apr to June) 2017. The information and communication sector has also seen strong contributions over this period but saw a fall in Quarter 4 2018; this was the lowest contribution since Quarter 1 2017. The wholesale, retail and motor trade sector saw large contributions in Quarter 2 and Quarter 3 2018, due mainly to the retail trade industry.

Real estate activities, and human health and social work were the other sectors that saw a large contribution in Quarter 4 2018. The real estate activities sector increased by 0.6% and contributed 0.11 percentage points. The imputed rent, and owned or leased real estate industries were behind this growth. They grew by 0.4% and 0.8%, contributing 0.05 and 0.04 percentage points respectively.

The human health activities industry was the predominant factor behind the growth in the human health and social work sector. This industry grew by 1.0% and contributed 0.07 percentage points. Data for this industry are split by:

• non-market, provided by general government final consumption expenditure (85%)

• market, collected by the Monthly Business Survey (15%)

Both components contributed to the quarterly increase. The non-market side saw a rise due to an increased budget to deal with winter pressures, while there was widespread growth across the market data.

Services output decreased by 0.2% in December 2018, following a rise of 0.3% in November 2018. The decrease of 0.2% in December is the lowest month-on-month growth since February 2018.

Figure 4 shows the month-on-month contributions of each of the Index of Services sectors for December 2018.

The wholesale, retail and motor trade sector contributed the most to the monthly decrease. It fell by 0.8% and contributed negative 0.11 percentage points. Within this sector, both the retail trade and wholesale trade industries were responsible for this fall. They decreased by 0.9% and 1.3% respectively, both contributing negative 0.06 percentage points.

Retail trade saw widespread falls with all sectors except food stores and fuel stores declining on the month; for more information please see Retail sales, Great Britain: December 2018. Large businesses in the wholesale of fuel component were a big reason behind the month-on-month fall in the wholesale trade industry, driven by fluctuations in oil price. However, there were also large falls in household goods and non-specialised wholesale.

Across the rest of the sectors, the other notable industry falls contributing to the 0.2% services decrease were:

• architectural and engineering activities, which decreased by 2.2%, contributing negative 0.05 percentage points

• scientific research and development, which decreased by 5.5%, contributing negative 0.04 percentage points

• other personal service activities, which decreased by 3.1%, contributing negative 0.04 percentage points

The largest positive contributing industry was the legal activities industry, which increased by 4.5% and contributed 0.08 percentage points. This follows a fall in November 2018 and was driven by the large businesses within the industry. This large rise offset other industry falls within the professional, scientific and technical activities sector.

Growth at sector level was mixed in December 2018, with 6 of the 14 sectors decreasing, while there were increases in five and three showed no growth. Where sectors did fall they were stronger in their movement than the sectors that grew. The Monthly Business Survey (MBS) is the prime source of activity for the services sector, covering 35 of the 51 industries and accounting for 42% of services (Table 1). The fall in total MBS turnover between November and December in 2018 was larger than in recent years (Figure 5).

Figure 5 shows the growth between November and December for total services turnover excluding wholesale trade from 2008. Wholesale trade has been excluded as the size of the turnover is very large compared with the rest of services. In addition, the output of this industry is based upon margins and we use turnover as a proxy for this, while the output of every other MBS industry is better captured using turnover. The Monthly Business Survey turnover of services industries dataset is published alongside this release.

Figure 6 shows the three month on a year ago Index of Services (IoS) growth rates since January 2015.

In the three months to December 2018, services output increased by 1.9% compared with the three months ending December 2017. This was last higher in the three months to September 2017, which grew by 2.1%. It is also equal to the growth in the three months to November 2018, which is the highest the growth has been in 2018. This growth has strengthened since the 1.4% growth in the three months to April 2018.

The Index of Services (IoS) increased by 1.7% in 2018 compared with 2017. This is weaker than the 2.1% increase in 2017 and is the lowest year-on-year growth since 2011, which also grew by 1.7%. Figure 7 shows IoS annual growth rates since 1997.

The sectors largely responsible for the annual growth were:

• professional, scientific and technical activities, which increased by 5.4%, contributing 0.52 percentage points

• information and communication, which increased by 4.7%, contributing 0.39 percentage points

• wholesale, retail and motor trade, which increased by 2.9%, contributing 0.37 percentage points

However, the information and communication sector saw weaker growth when compared with 2017 (6.8%). Other sectors responsible for the weakening in annual growth were:

• other service activities, which decreased by 3.3% compared with an increase of 4.4% in 2017

• financial and insurance activities, which decreased by 1.2% compared with an increase of 0.2% in 2017

• administrative and support service activities, which increased by 2.7% compared with an increase of 4.5% in 2017

Alongside this publication we publish the Index of Production (IoP) and Construction output in Great Britain, allowing for an estimate of monthly gross domestic product (GDP), which is also published today (11 February 2019) as part of the GDP first quarterly estimate, UK: October to December 2018.

International comparisons

International comparison with the Index of Services (IoS) is difficult, as most comparable economies do not produce equivalent estimates. Eurostat turnover in services estimates are not comparable with the IoS, as they exclude the wholesale and retail trade; furthermore, most of the estimates are only available quarterly. The US Bureau of Economic Analysis also produces services output estimates, but only on a quarterly basis, with a four-month lag time. Japan has a direct equivalent of the IoS, but the estimates are not seasonally adjusted. The closest equivalent estimates are from Canada, which produces a monthly output estimate of GDP with a breakdown by industry (including an aggregate for services). There are also comparable quarterly estimates from Sweden and Ireland.

We will be publishing an article, Services sector performance, UK: 2008 to 2018, on 15 March 2018.

We welcome your feedback on this bulletin via our short survey.

The monthly Index of Services (IoS) was developed to provide a timely indicator of growth in the output of services industries, at constant prices for the UK. The IoS is an important component of monthly output (gross domestic product output approach (GDP(O))), representing about 79.6% of UK gross domestic product (GDP) as of 2016. The IoS shares the exact same industry coverage as the corresponding quarterly series within GDP(O).

These data are used to produce seasonally adjusted estimates of output at chained volume measures (removing the effect of price changes). Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data.

The IoS is compiled using data from several different sources (Table 1), this is detailed further in the GDP(O) source catalogue. In addition, we include Value Added Tax (VAT) data across 42 services industries for small- and medium-sized businesses. These have been used to supplement data from the Monthly Business Survey (MBS) for the period January 2016 to June 2018. Further information on the use of VAT data was published in the VAT turnover data in National Accounts: background and methodology update.

The GDP(O) methods and sources pages provide more information on the data that underpin these statistics; of particular note is the GDP(O) source catalogue.

Notes:

1. The Monthly Business Survey (MBS) data are published alongside this release in the MBS turnover of services industries dataset.

2. Data relating to the retail industry are broadly comparable with Retail sales, Great Britain: December 2018, published on 18 January 2018.

3. For further information on what’s included within Other, please see the GDP(O) source catalogue.

This December 2018 release contains revisions from January 2018 and is consistent with the National Accounts Revisions Policy. Revisions 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

• Her Majesty’s Revenue and Customs (HMRC) VAT returns replacing MBS data for small- and medium-sized businesses when VAT estimates become available every quarter

Published alongside this release, the Index of Services datasets contain additional material, including:

• MBS response rates (current and historic)

• IoS and main component and sector indices to four decimal places

• publication tables

• revisions triangles

• lower-level time series data

• MBS turnover of services industries

The Index of Services 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