1. Main points

  • The headline rate of services producer price inflation, as estimated by the Services Producer Price Index (SPPI), continued to fall back in Quarter 1 (Jan to Mar) 2017 following steady growth across 2016.

  • The annual rate of growth for SPPI rose 1.0% in Quarter 1 2017, which is down from 1.2% in Quarter 4 (Oct to Dec) 2016 and below average growth of 1.4% across 2016.

  • The quarterly rate of growth increased 0.3% in Quarter 1 2017, which is up from Quarter 4 when the rate was flat.

  • Prices for information and communication activities provided the largest upward contribution to the annual rate, mainly as a result of rising prices for book publishing services and business telecoms.

  • Prices for accommodation and food service activities provided the largest downward contribution to the annual rate, mainly as a result of falling prices from licensed hotels and hotels with restaurants.

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2. Things you need to know about this release

The Services Producer Price Indices (SPPI) provides a measure of inflation for the UK service sector. It is constructed from a statutory quarterly survey, which measures changes in the price received for selected services provided by UK businesses to other UK businesses and government. Individual SPPIs are available, which provide information on price change for a selection of service industries. These individual price indices are also aggregated together to create a service industry SPPI with limited coverage (it does not provide full coverage of the “service sector”).

The service sector is estimated to account for around 78% of the UK economy based on its weight in gross domestic product (GDP). We do not produce an index for every industry in the service sector and so the SPPI is a partial, best estimate, of the overall inflation to UK businesses in the service sector. The SPPIs presented in this statistical bulletin are estimated to represent 59% of the total service sector at industry level. The SPPI's coverage of the service sector at standard industrial classification (SIC) class, division and section level is available in the SPPI coverage document. As resources allow, we will continue to review the existing indices and expand coverage through developing indices for new industries. As such, the SPPI will change composition from time to time but will always remain our best estimate of inflation in the UK service sector. The fact that coverage may change over time should be considered when deciding which indices best meet your needs.

Not all of the industry level indices used to construct the SPPI are National Statistics.

The figures presented in this statistical bulletin are considered provisional for the latest 2 quarters and may be revised as late data is received.

All figures presented in this statistical bulletin are calculated on a gross sector basis unless otherwise stated and all index numbers exclude VAT. None of the indices presented in this bulletin are seasonally adjusted.

Every 5 years, services producer prices indices are rebased and their weights updated to reflect changes in industry.

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3. Services producer price inflation summary

The Services Producer Price Index has reported positive growth for most of the period across the past 10 years. The fastest consecutive quarter-on-quarter growth was in the run-up to the downturn towards the end of 2008. Following the peak in Quarter 3 (July to Sept) 2008, the index fell 1.6% by Quarter 2 (Apr to June) 2009 before levelling off and starting to grow again.

Since Quarter 4 (Oct to Dec) 2008, when growth returned, the index has averaged quarter-on-quarter growth of 0.3%. Average growth across 2016 overall matched this trend, although has slowed since Quarter 2 2016.

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4. The annual rate of growth for SPPI has been slowing since Quarter 3 2016 and is currently below average increases seen across 2016

The Services Producer Price Index (SPPI) rose 1.0% on the year to Quarter 1 (Jan to Mar) 2017, down from an increase of 1.2% on the year to Quarter 4 (Oct to Dec) of 2016. SPPI increased 0.3% between Quarter 4 2016 and Quarter 1 2017. The annual rate of growth has been slowing since Quarter 3 (July to Sept) 2016 and is currently below the average growth of 1.4% for 2016.

Of the 10 sections (as defined by the 2007 Standard Industrial Classification) that are combined to form SPPI, seven showed price increases for both the annual and quarterly rates.

Of the 10 SPPI sectors, six have shown an upward contribution to the annual growth rate and seven to the quarterly growth rate.

Information and communication services and transportation and storage services provided the largest and second-largest contributions to both annual and quarterly growth rates. Professional, scientific and technical services provided the largest downward contribution to the annual rate.

Prices for information and communication services had an annual growth rate of 2.2% (Table 2) and showed an upward contribution of 0.41 percentage points to the SPPI annual rate, while the quarterly rate was 1.1%, up from a fall of 0.9% in Quarter 4 2016. The largest contributor to growth was book publishing services, which increased by a record 5.1% on the quarter.

Transportation and storage service prices increased 1.9% on the year to Quarter 1 2017 (Table 2), the largest increase since Quarter 2 (Apr to June) 2011. This was driven mainly by a record increase of 7.1% in the prices of cargo handling, which has been growing throughout 2016. The quarter-on-quarter prices for transportation and storage also grew steadily throughout 2016 reaching a peak of 0.6% in Quarter 1 2017.

Professional, scientific and technical services decreased on the annual and quarterly rates by 0.2% and 0.6% respectively. This is the first time the index has seen a decrease on the year. The main contributor to the fall in both the annual and quarterly rates was engineering services.

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6. Quality and methodology

The SPPI Quality and Methodology information document contains important information on:

  • the strengths and limitations of the data and how it compares with related data
  • users and uses of the data
  • how the output was created
  • the quality of the output including the accuracy of the data

If you would like more information about the reliability of the data, an SPPI standard errors article was published 28 July 2016. The article presented the calculated standard errors of the Services Producer Price Index (PPI) during the period Quarter 2 (Apr to June) 2012 to Quarter 1 (Jan to Mar) 2016, for both quarter-on-quarter and 12-month growth.

Guidance on using indices in indexation clauses (2015) has been published on our website. It covers producer prices, services producer prices and consumer prices.

Detailed information on the methods used to compile the SPPI is available in the SPPI manual.

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