Index of Services, UK: July 2017

Monthly movements in output for the services industries: distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services.

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Contact:
Email Mark Stephens

Release date:
29 September 2017

Next release:
25 October 2017

1. Main points

  • The Index of Services decreased by 0.2% between June and July 2017.
  • The largest contribution to the month-on-month decrease came from the transport, storage and communication sector, which contributed negative 0.22 percentage points
  • The industry largely responsible for the fall on the month was motion pictures, which contributed negative 0.19 percentage points; this decrease follows a particularly strong June for the industry.
  • In the three months to July 2017, services output increased by 0.5% compared with the three months ending April 2017; this is the highest three-month on three-month estimate in 2017 so far.
  • In the three months on a year ago to July 2017, services output increased by 1.8% compared with the three months on a year ago ending July 2016.
  • In this release of data, the earliest period open to revision is January 1997 as this dataset contains the annual updates that will be included in the Blue Book 2017 due to be published on 31 October 2017 (the reference year and last base year for the index have been moved to 2015).
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2. Things you need to know about this release

The monthly Index of Services (IoS) provides a timely indicator of growth in the output of the services industries and is the largest contributor to the output approach to the measurement of gross domestic product (GDP), accounting for 79.3% of UK GDP in 2015.

The IoS measures the UK output in: distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services. These data are used to produce seasonally adjusted estimates of output at chained volume measures (removing the effect of inflation). Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data.

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.

Data relating to the retail industry are broadly comparable with Retail sales in Great Britain: July 2017, published on 17 August 2017.

This July 2017 release contains revisions from January 1997 due to the Blue Book 2017 updates. Sources of these revisions include but are not limited to:

  • updates to the annual gross value added (GVA) weights
  • improved statistical methods
  • alignment to gross domestic product (GDP) annual growths
  • revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually
  • late responses to surveys and administrative sources
  • forecasts being replaced by actual data

This revisions period is consistent with the National Accounts Revisions Policy.

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 Official Statistics.

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3. Index of Services (IoS) main figures and the longer-term trend

Table 1 shows data for the Index of Services (IoS) and each of the main components for July 2017.

Figure 1 shows the seasonally adjusted index time series for the IoS over the past decade; this shows continued services growth following the economic downturn. The monthly IoS series can be volatile and therefore we recommend that monthly growths are viewed in the context of the longer-term trend and three-month on three-month growth rates.

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4. Month-on-month services growth decreased in July 2017

During July 2017, services output decreased by 0.2% following a rise of 0.3% in June 2017.

Figure 2 shows the pattern of Index of Services (IoS) headline growth rates since January 2015 and Figure 3 shows the month-on-month contributions of each of the main IoS components.

The main sector that applied downward pressure to the month-on-month growth was transport, storage and communication, which fell by 1.6%, contributing negative 0.22 percentage points. The industry within this sector that was almost entirely responsible for this fall was motion pictures, which fell by 19.8%, contributing negative 0.19 percentage points. This decrease in motion pictures follows on from a particularly strong June for the industry. Further information on the films in June and July 2017 can be found on the British Film Institute (BFI) website.

The other three main components of the services industries were flat over the same period.

In order of their contribution to growth, other industries contributing to the decrease of 0.2% in July 2017 were:

  • wholesale trade, which decreased by 1.2%, contributing negative 0.05 percentage points (please see the What’s changed in this release? section for changes impacting this industry)
  • office administration, which decreased by 1.9%, contributing negative 0.03 percentage points
  • travel agencies, which decreased by 3.1%, contributing negative 0.03 percentage points
  • other professional, scientific and technical activities, which decreased by 3.2%, contributing negative 0.03 percentage points

In contrast, industries that partially offset some of the negative growth were:

  • telecommunications, which increased by 2.1%, contributing 0.05 percentage points
  • employment activities, which increased by 2.1%, contributing 0.03 percentage points
  • accommodation, which increased by 2.9%, contributing 0.03 percentage points
  • food and beverage services, which increased by 0.9%, contributing 0.03 percentage points.
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5. Three-month on three-month services growth increased in July 2017

Figure 5 shows that services output increased by 0.5% in the three months ending July 2017 when compared with the three months ending April 2017, making this the highest three-month on three-month growth in 2017 so far. Despite the fall in the month of July, the underlying trend in services is still one of steady growth.

All of the four main components of the services industries increased in the three months ending July 2017. In order of their contribution to growth:

  • business services and finance increased by 0.5%, contributing 0.20 percentage points
  • transport, storage and communication increased by 0.9%, contributing 0.12 percentage points
  • distribution, hotels and restaurants increased by 0.7%, contributing 0.12 percentage points
  • government and other services increased by 0.2%, contributing 0.05 percentage points

The main sector driving Index of Services (IoS) growth is business services and finance, with accounting activities increasing by 3.3%, contributing 0.05 percentage points. In addition, advertising activities, other professional, scientific and technical activities, and financial service activities each contributed 0.03 percentage points, increasing by 3.4%, 3.5% and 0.5% respectively.

Computer programming was the largest industry contributing to the positive growth in the transport, storage and communications sector, increasing by 2.1% and contributing 0.07 percentage points. Also, telecommunications and postal and courier activities each contributed 0.03 percentage points, increasing by 1.3% and 3.0% respectively.

Making up 6.9% of IoS, retail trade was the largest industry contributing to the positive growth in the distribution, hotels and restaurants sector, increasing by 0.6% and contributing 0.04 percentage points. Please see the Retail sales in Great Britain: July 2017 release for more information. In addition, wholesale trade and motor trades each contributed 0.03 percentage points to growth, increasing by 0.8% and 1.1% respectively.

Human health activities, another large weighted industry that also represents 6.9% of IoS, was the largest industry contributing to the positive growth in the government and other services sector, increasing by 0.5% and contributing 0.04 percentage points. Other personal services offset this, decreasing by 2.9%, contributing negative 0.04 percentage points.

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6. Three-month services growth on a year ago

In the three months on a year ago to July 2017, services output increased by 1.8% compared with July 2016; this is in line with the average for this estimate since February 2017.

All four of the main components of the services industries increased in the most recent three months compared with the same three months a year ago. In order of their contribution to growth:

  • business services and finance increased by 1.5%, contributing 0.62 percentage points
  • distribution hotels and restaurants increased by 3.1%, contributing 0.55 percentage points
  • transport, storage and communication increased by 3.0%, contributing 0.39 percentage points
  • government and other services increased by 0.9%, contributing 0.25 percentage points

The main industry contributing to the services growth is food and beverage services which increased by 6.4% and contributed 0.18 percentage points.

Other industries contributing to the 1.8% rise in July were:

  • wholesale trade, which increased by 3.7%, contributing 0.16 percentage points
  • financial service activities, which increased by 2.8%, contributing 0.14 percentage points
  • computer programming, which increased by 4.6%, contributing 0.14 percentage points.
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7. What is the contribution of services to gross domestic product?

With a weight of 79.3% in 2015, the services industries are the largest industrial grouping in the output approach to measuring gross domestic product (GDP).

Also published today (29 September 2017) is the Quarterly National Accounts: April to June 2017, reporting that GDP in Quarter 2 (Apr to June) 2017 increased by 0.3% compared with the previous quarter. The services aggregate was the dominant contributor to the quarter-on-quarter percentage change in GDP, contributing 0.34 percentage points. Production and construction contributed negative percentage points of 0.04 and 0.03 respectively. Agriculture contributed 0.00 percentage points to the headline figure.

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9. What’s changed in this release?

This July 2017 release contains revisions from January 1997. This will be in line with the open revision period for the 2017 Blue Book publication on 31 October 2017. The estimates will also be consistent with the Quarterly National Accounts published on 29 September 2017. These annual changes will include updating the reference year from 2013 equals 100 to 2015 equals 100, along with adding an additional two years of chain-linking weights for 2015.

In this release, the Monthly Business Survey, which accounts for approximately 45% of IoS and underpins the current prices data feeding into this release, contains new imputation methodology for survey non-response back to January 2016. Previously, for respondents that did not return data in a month, the value was imputed using a ratio imputation method called the mean of ratios. The new method, referred to as the ratio of means, is more stable and reduces imputation bias. We have published an article detailing the impact alongside this bulletin.

This bulletin contains significant revisions to the wholesale industry SIC46 from January 2017 from the Monthly Business Survey and reflected in the Turnover in production and services industries dataset. This however has not had an impact on the Index of Services. This is due to the reclassification of several businesses from SIC4671, wholesale of solid, liquid and gaseous fuels and related products, to the financial services sector where we confirmed that the overwhelming activity of the business was in financial trading. The impact of the reclassification was to reduce nominal turnover for January 2017 by approximately 12 billion but this has not had an impact on the output of the wholesale industry.

Normally the reclassification of a business would deliver a decrease in turnover for one industry and an increase in turnover for another, producing a potential impact on the turnover series and growth rates for each industry. However, in this instance the reclassification has been complicated by the move to the financial sector where the activity has already been recorded. In addition turnover is not the accepted means by which output is measured. Output in the financial sector is conceptually different to the rest of the economy and is better measured by, for example, fees and charges for direct output, and financial intermediation services indirectly measured (FISIM) for indirect output. Accordingly we have linked the series for industry 4671 from January 2017 to ensure that there has been no consequential impact on output.

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10. Upcoming changes

We launched a public consultation, which closed on 14 September 2017, to seek views on an alternative model for our publications of gross domestic product (GDP) estimates. In summary, this model would give two balanced estimates of quarterly GDP using data from the output, income and expenditure approaches around 6 and 13 weeks after the end of the preceding quarter. The Index of Services publication date would be moved two weeks earlier and become part of the short-term economic indicator theme day, enabling a monthly GDP estimate to be produced. A response to this consultation will be published in October.

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 September) 2017 and the Index of Services: October 2017 bulletins, which are both due for publication on 22 December 2017.

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11. Feedback on this bulletin

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

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12. Quality and methodology

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 78.8% of UK gross domestic product (GDP) as of 2013. The IoS shares the exact same industry coverage as the corresponding quarterly series within GDP(O).

The Index of Services datasets contain additional material, including:

  • Monthly Business Survey (MBS) response rates (current and historic)
  • IoS and main component indices to four decimal places
  • publication tables
  • revisions triangles
  • lower-level time series data

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
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