Index of Production, UK: April 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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Contact:
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Release date:
11 June 2018

Next release:
10 July 2018

1. Main points

  • The three-monthly fall to April 2018 in manufacturing of 0.5% is the largest fall since May 2017, due mainly to decreases in electrical equipment (9.4%), and basic metals and metal products (1.8%).

  • The fall in manufacturing is supported by widespread weakness throughout the sector due to a reduction in the growth rate of both export and domestic turnover.

  • In the three months to April 2018, the Index of Production increased by 0.3% compared with the three months to January 2018, due primarily to a rise of 3.2% in energy supply; this was supported by a rise in mining and quarrying of 4.3%.

  • In April 2018, total production was estimated to have decreased by 0.8% compared with March 2018, led by a fall of 1.4% in manufacturing and supported by falls in energy supply (2.0%), and water and waste (1.8%).

  • The monthly decrease in manufacturing output is the largest fall since October 2012 when it fell by 1.8%; there is widespread weakness with 9 of the 13 sub-sectors decreasing and this is a continuation of the recent slowdown in this sector.

  • In the three months to April 2018, the Index of Production increased by 2.3% compared with the same three months to April 2017, due mainly to a rise of 2.3% in manufacturing.

  • In this release, there are no periods open for revision.

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2. Things you need to know about this release

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 14.0% of the output approach to the measurement of GDP.

The 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 approximately 6,000 businesses from the Monthly Business Survey (MBS). In addition, from the November 2017 bulletin published in January 2018, we have also included Value Added Tax (VAT) data across 64 production industries for small and medium-sized businesses. These have been used to supplement data from the MBS from January 2016 to September 2017. 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 current price non-seasonally adjusted estimates of industries collected by the 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. There have been significant movements in the latest months for the other transport equipment industry and the repair and maintenance of ships and boats industry. We can confirm that these are correct and driven by reclassification of large businesses.

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 a number of 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.

This release is not open to revision. This is in line with the updated National Accounts Revisions Policy.

Revisions can be made for a variety of reasons; the most common include:

  • late responses to surveys and administrative sources, or changes to original returns
  • HMRC VAT returns replacing MBS data for small and medium-sized businesses when VAT estimates become available every quarter
  • forecasts being replaced by actual data
  • revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually

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.

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

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3. Index of Production main figures and the longer-term trend

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 5.3% and 1.3% lower, respectively, in the three months to April 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 main sectors for April 2018.

The three months-on-previous three months estimate of total production rose by 0.3% in April 2018, with two of the four main sectors increasing, despite the largest three-monthly fall in manufacturing output since May 2017.

The monthly estimate of total production decreased by 0.8% due mainly to manufacturing, which fell by 1.4%, the largest decrease since October 2012, with 9 of the 13 sub-sectors decreasing. This continues the overall slowdown in this sector over recent months, following a period of sustained growth during the latter part of 2017.

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

In the three months‐on‐previous three months to April 2018, total production was estimated to have increased by 0.3% (Table 2) and follows an increase of 0.6% in the three months to March 2018. Of the four main sectors, two sectors displayed increased output.

However, the main point of interest is the fall in manufacturing output of 0.5%. This is the largest three-monthly decrease since May 2017, when it fell by 1.0% and is due to widespread weakness throughout the sector, with 9 of the 13 sub-sectors falling.

Figure 3 provides a breakdown of positive and negative contributions for the 44 manufacturing sub-industries to total Index of Production (IoP) three-monthly growth and supports the weakness at sub-sector level. It does not record neutral contributions.

Following the sustained period of strength during the latter part of 2017, there has been a stronger impact from those industries providing downward contributions to IoP three-monthly growth, providing further evidence of the slowdown in output. Of the 44 industries, 21 display a negative contribution for the three months to April 2018 whereas only 14 industries contributed positively. This is only the third time since October 2016 that negative contributors have numbered more than positive contributors, providing the basis for an overall fall in manufacturing.

The largest fallers at industry level were electrical equipment (9.4%) where orders for electrical machinery have fallen from a high in Quarter 4 (Oct to Dec) 2017; fabricated metal products (2.7%) due to a decline in infrastructure projects since Quarter 4 2017; and rest of repair and installation (7.2%) following re-structuring within the industry.

Growth in total manufacturing turnover has continued to weaken, with April 2018 at the lowest level since August 2017. A decrease of 0.2% was also reported for the three months to April 2018, compared with the same three months to January 2018. These decreases were published today (11 June 2018) in the Monthly Business Survey turnover in production industries dataset. However, it is important to note that this dataset is not seasonally adjusted and is based on current prices and therefore does not reflect the impact of price changes.

The slowdown in output over a longer time span can be understood further when considering current price non-seasonally adjusted manufacturing growth, for export and domestic turnover for three-months-on-three-months a year ago (Figure 4).

Figure 4 shows that growth in export turnover peaked in January 2017 at 18.2%. In contrast, domestic turnover growth peaked in March 2017 at 5.0%. Export turnover has gradually declined since January 2017 to 1.6% for the three months to April 2018, compared with the same three months to April 2017 – the weakest growth since April 2016 when export turnover increased by 2.6%.

The decline in domestic growth since the beginning of 2018 is more pronounced and has fallen to 0.8% for the three months to April 2018 compared with the same three months to April 2017. In contrast, producer price inflation (PPI) has grown steadily so these factors suggest a fall in the rate of volume growth over the period.

Following an increase of 2.5% in the three months to March 2018, energy supply provided the largest upward contribution to total production in the three months to April 2018, rising by 3.2%. Within this sector, gas supply increased by 5.2%, due mainly to lower than average temperatures during February and March 2018. Electricity generation also increased by 2.2%.

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5. What is contributing to the three months-on-three months a year ago increase?

Total production increased by 2.3% in the three months to April 2018, compared with the same three months to April 2017 (Table 3).

Energy supply rose by 6.7%, due mainly to increased demand for gas, driven by the lower than average temperatures during both February and March 2018.

The largest upward contribution came from manufacturing, which increased by 2.3%. Within this sector, machinery and equipment not elsewhere classified provided the largest upward contribution, increasing by 10.8%, continuing the long-term strength in this sub-sector since June 2016. Increases in total and export turnover were also reported for the three months to April 2018, compared with the same three months to April 2017, for this sub-sector.

These increases were published today (11 June 2018) in the Monthly Business Survey turnover in production industries dataset. However, it is important to note that this dataset is not seasonally adjusted and is based on current prices and therefore does not reflect the impact of price changes.

Basic metals and metal products; transport equipment; other manufacturing and repair; computer, electronic and optical equipment; and pharmaceutical products provided supporting strength.

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6. What is contributing to the month-on-month decrease?

The monthly estimate of total production decreased by 0.8% in April 2018 (Table 4). This follows an increase of 0.1% in March 2018. This month is the largest fall since December 2017 when output decreased by 1.2%, due mainly to unplanned maintenance on the Forties oil pipeline.

The largest contribution this month came from manufacturing, which decreased by 1.4%, with 9 of the 13 sub-sectors falling; this is the largest monthly fall since October 2012. In October 2012, manufacturing output fell by 1.8%; this was due largely to falls in motor vehicles, trailers and semi-trailers; pharmaceutical products; and oil refining.

April 2018 is the third consecutive monthly fall in manufacturing and continues the marked slowdown in this sector, highlighted in Section 4 of this bulletin. Decreases in total and export manufacturing turnover of 11.2% and 12.9% respectively, were reported for April 2018 compared with March 2018.

These decreases were published today (11 June 2018) in the Monthly Business Survey turnover in production industries dataset. However, it is important to note that this dataset is not seasonally adjusted and is based on current prices and therefore does not reflect the impact of price changes. It should also be noted that survey response was comparatively high this month and notable weakness was due mainly to the cumulative impact of large businesses reporting decreased turnover.

The effect of the timing of the Easter bank holidays should also be considered when assessing the impact of the overall weakness in manufacturing output this month.

In 2018, the Good Friday and Easter Monday bank holidays were split between the end of March and the beginning of April, resulting in one additional working day in April 2018 compared with April 2017. This calendar effect is relatively rare (since 1995, Easter has been split over both March and April during only 2002, 2013 and 2018), so our preferred three-monthly estimate is a more robust measure of the slowdown in manufacturing output.

The fall in energy supply of 2.0% is due mainly to the above-average temperature during April 2018. According to the Met Office, the provisional UK mean temperature was 8.4 degrees Celsius in April 2018, which is 1.0 degrees Celsius above the 1981 to 2010 long-term average.

In contrast and largely offsetting the falls from energy supply, and water and waste, was a rise in mining and quarrying. Output rose by 6.9%, due to crude petroleum and natural gas, which increased by 8.4% due primarily to fields coming out of maintenance.

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7. Upcoming changes

Our next release, Index of Production: May 2018 will include methodological updates and revisions back to 1997 and is our UK National Accounts, The Blue Book-consistent publication. This is in line with the standard National Accounts Revisions Policy. These annual changes will include updating the reference year from 2015 equals 100 to 2016 equals 100, along with adding an additional year of chain-linking weights for 2016 and updated Value Added Tax (VAT) data.

As part of the transformation of Office for National Statistics data collection, 33,000 Monthly Business Surveys covering production and services are moving online from paper despatch. This process has begun with 1,000 businesses selected at random for the Index of Production and Index of Services for May 2018. The survey will move fully online later this year.

In July, short-term economic indicators will be moving towards monthly gross domestic product (GDP). In addition to this release, on 10 July the following will be published: UK Index of Production: May 2018, UK Index of Services: May 2018, Construction output in Great Britain: May 2018 and UK trade: May 2018.

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9. Quality and methodology

The majority of data used to compile the manufacturing sector and therefore the Index of Production (IoP), are collected via the Monthly Business Survey (MBS). Since the Index of Production, UK: November 2017 publication, the IoP also contains Value Added Tax (VAT) returns for 76,390 businesses across 64 production industries. The MBS samples around 6,000 businesses every month, this is now supplemented with VAT returns.

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 the Department for Business, Energy and Industrial Strategy (BEIS) for fuel industries and 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).

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

At present the Quality and Methodology Information report is being updated to reflect the inclusion of VAT data and will be published later this year.

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