Index of Production, UK: August 2018

• The rise of 0.7% in total production output for the three months to August 2018, compared with the three months to May 2018, is due primarily to a rise of 0.8% in manufacturing, which displays widespread strength throughout the sector with 10 of the 13 sub-sectors increasing.

• The three-monthly increase in manufacturing output is due primarily to strength from pharmaceutical products (3.3%), food, beverages and tobacco (1.5%), and rubber and plastic products (2.1%).

• In August 2018, total production output was estimated to have increased by 0.2% compared with July 2018, due primarily to rises in electricity and gas supply of 1.8% and mining and quarrying of 2.1%.

• The monthly decrease in manufacturing output of 0.2% was due mainly to falls of 2.3% in chemicals and chemical products, and 1.7% in wood and paper products; 7 of the 13 manufacturing sub-sectors decreased.

• In the three months to August 2018, total production output increased by 1.0% compared with the same three months to August 2017, due primarily to a rise in manufacturing of 1.5%.

This August 2018 release contains revisions from January 2017 to June 2018, which is consistent with those published in the Quarterly national accounts on 28 September 2018. This revised data now includes Value Added Tax (VAT) data for the first time in Quarter 1 (Jan to Mar) 2018. In addition, this release also contains revisions to July 2018 and is consistent with the National Accounts Revisions Policy.

On 11 October 2018, we will publish an article on the future use of VAT as part of the economic review, which will consider the strategic collection model for administrative and survey data for short-term indicators, including the Index of Production.

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 13.8% of the output approach to the measurement of GDP.

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 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.

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.

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 5.7% and 1.5% lower, respectively, in the three months to August 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 sectors for August 2018.

Total production output for the latest three months to August 2018, compared with the three months to May 2018, increased by 0.7%. This is the strongest three-monthly growth since November 2017, when output rose by 1.1%. The current three-monthly growth is due primarily to:

• rises in three of the four main sectors
• a 0.8% increase in manufacturing output
• an increase of 2.6% in water supply and sewerage, due to broad-based strength throughout the sector

The strength in manufacturing is broad-based, with 10 of the 13 sub-sectors increasing, led by pharmaceutical products, which increased by 3.3%. This was the third consecutive rise within this sub-sector, due mainly to strength during June 2018, although it should be noted that growth within this sub-sector can be volatile.

Providing supporting growth is food, beverages and tobacco, which rose by 1.5%, due primarily to continued strength from alcoholic beverages (2.1%); soft drinks, mineral waters and bottled water (5.6%); and processing of fish, fruit and vegetables (3.7%). The sustained period of warm weather, especially during June and July 2018, is a factor behind increased output in all three sub-industries.

Rubber and plastic products rose by 2.1% and this increase is due to broad-based strength throughout the sub-sector. The largest contribution to the increase came from the sub-industry cement, lime, plaster and articles of concrete, which rose by 6.6%, due primarily to weakness during the three months to May 2018.

In contrast, and providing the largest fall in three-monthly manufacturing output, is machinery and equipment not elsewhere classified, which fell by 2.8%. As highlighted in last month’s release, weakness within this sub-sector is due to a stronger impact during the three months to May 2018 from infrastructure projects.

Despite recent signs of a recovery in manufacturing output, following two consecutive periods of three-monthly growth during July and August 2018, recent strength is due, in part, to the three-monthly weakness to May 2018, driven primarily by a weak April 2018, when output fell by 0.8%. This in turn further strengthens the current three-monthly growth, where the index level during June, July and August 2018 remains comparatively flat (Figure 3).

The fall of 1.7% in electricity and gas supply partially offsets the overall rise in total production output. This is due primarily to a decrease of 4.6% in gas supply, with demand driven down by the warmer than average temperatures impacting June and July 2018 in particular, as reported by the Met Office. This is the fourth consecutive three-monthly fall in this sub-industry.

Monthly total production output has risen by 0.2% in August 2018 and this is the third consecutive increase, following growth of 0.4% in July 2018 and 0.9% during June 2018. The increase this month is due primarily to:

• rises in three of the four main sectors
• increases from electricity and gas supply of 1.8% and mining and quarrying of 2.1%

The strength within electricity and gas supply is driven by increased demand due mainly to a fall in temperature of 2.0 degrees Celsius between July and August 2018. The Met Office reported that the provisional UK mean temperature during August 2018 was 15.3 degrees Celsius; that is, 2.2 degrees Celsius above the long-term average, compared with July 2018, where the mean temperature was 17.3 degrees Celsius, 0.3 degrees above the long-term average.

Mining and quarrying rose by 2.1%. Strength came from an increase of 2.6% in oil and gas extraction, despite limited maintenance and outages in August 2018. However, due to a stronger negative impact from maintenance during August 2017, this resulted in a seasonally adjusted increase in output.

In contrast, the overall fall in manufacturing of 0.2% is driven by a decrease of 2.3% within chemical products. This is followed by wood, paper products and printing, which fell by 1.7%. Seven of the 13 sub-sectors decreased on the month, highlighting a mixed picture for manufacturing this month.

Partially offsetting the overall weakness in manufacturing output is a rise of 0.7% within transport equipment, due mainly to a 1.1% increase within motor vehicles, trailers and semi-trailers. However, the Society of Motor Manufacturers and Traders (SMMT) reported that UK car production declined in August 2018 and it was likely that slowed output was in preparation for September’s important new emissions standards.

In contrast, exports remain relatively stable with the number of cars built for export remaining at a high level, which underpins the overall increase within this sub-industry. Over a longer time period, nominal export turnover growth for motor vehicles, trailers and semi-trailers for the three months to August 2018 increased by 10.5%, compared with the same three months to August 2017.

Total production output for the three months to August 2018 has increased by 1.0%, compared with the same three months to August 2017. Overall strength is due primarily to:

• rises in two of the four main sectors
• an increase of 1.5% for total manufacturing output
• a non-seasonally adjusted increase of 1.5% for total manufacturing output; supported by an increase in nominal total manufacturing export and domestic growth of 6.8% and 0.8% respectively, published today (10th October 2018) in our Monthly Business Survey turnover in production industries dataset alongside this release

The strength within manufacturing output although broad-based, with 8 of the 13 sub-sectors increasing, is primarily driven by continued strength within: computer, electronic and optical products (14.0%); basic pharmaceutical products (5.9%); food products, beverages and tobacco (2.7%); and machinery and equipment not elsewhere classified (5.1%).

Despite the three months on three months a year ago rate for manufacturing output displaying growth for the 27th consecutive period, since a 0.1% fall in May 2016, it is helpful to understand the longer-term trend (Figure 4).

Despite overall strength since the beginning of 2016, where growth peaked in November 2017 at 3.8%, output has since slowed but has stabilised over recent months.

Partially offsetting overall total production growth are falls in mining and quarrying of 0.6% and electricity and gas supply of 1.4%. Within electricity and gas supply, the fall of 3.1% from gas distribution and supply is due primarily to reduced demand, due to higher temperatures for June and July 2018, as indicated earlier in this bulletin.

Alongside this publication we publish the Index of Services (IoS) and Construction output in Great Britain, allowing for an estimate of monthly gross domestic product (GDP), which is also published today (10 October 2018).

The corresponding price indices used to deflate the Index of Production (IoP) are published in the monthly publication of UK producer price inflation. Product sales by manufacturers are published on an annual basis in UK manufacturers’ sales by product (ProdCom) statistical bulletins; estimates are in current prices, unlike the chained volume measures published in the IoP release.

The data published by the Department for Business, Energy and Industrial Strategy (BEIS) in Energy trends are used to measure the mining and quarrying, electricity and gas, and the manufacture of coke and refined petroleum products sectors within this release.

The IoP follows the Eurostat short-term statistics (STS) regulation for measuring output in production. The latest release of industrial production and output in manufacturing are available from Eurostat and are updated monthly. It should be noted that an accurate comparison cannot be made between our publication and the Eurostat publication without re-indexing the data to the same base year, as Eurostat data are calculated on a 2015 equals 100 basis, while UK data are calculated on a 2016 equals 100 basis.

The Index of Production (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 data from the Monthly Business Survey (MBS).

In addition, from the Index of Production, UK: November 2017 bulletin published in January 2018, Value Added Tax (VAT) data have been included across 64 production industries for small and medium-sized businesses. For further information as to the use of VAT turnover within the national accounts, please see VAT turnover data in National Accounts: background and methodology (published on 19 March 2018).

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 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 many 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.

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 BEIS for fuel industries and from 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).

Revisions to the Index of Production 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

Within the suite of datasets published monthly alongside this release, you will find:

• Output of the production industries (IOP5) publication tables
• Revisions to output of the production industries (IOP5R)
• Monthly Business Survey response rates for production industries for this publication
• Revision triangle – monitors the size of monthly and three-monthly revisions
• Index of Production weights 2016 equals 100
• Index of Production and industry sectors to four decimal places
• Monthly Business Survey turnover in production industries
• Export proportions for manufacturing industries

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

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