Index of Production, UK: January 2017

• In the 3 months to January 2017, total production was estimated to have increased by 1.9%, with manufacturing providing the largest contribution increasing by 2.1%, its strongest growth since May 2010.

• The highly volatile pharmaceuticals sector provided the largest contribution to the manufacturing increase, along with smaller upwards contributions from a range of other manufacturing industries.

• In January 2017, total production decreased by 0.4% compared with December 2016 with manufacturing providing the largest downward contribution, decreasing by 0.9%.

• The monthly decrease in manufacturing was largely due to a decrease in pharmaceuticals, falling by 13.5%, partially offset by increased manufacturing of transport equipment; pharmaceuticals can be highly erratic, with significant monthly changes, often due to the delivery of large contracts.

• Total production output for January 2017 compared with January 2016, increased by 3.2%, supported by growth in all 4 main sectors, with manufacturing providing the largest contribution, increasing by 2.7%.

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 14.6% 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 mainly based on the Monthly Business Survey (MBS) of approximately 6,000 businesses. For the mining and quarrying and energy supply sectors, and 2 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 today’s (10 March 2017) publication of TOPSI: Production and services turnover.

As part of the Short-term Economic Indicators theme day, IoP produces the proportion of turnover from exports, by industry. Level of exports (£ millions) is published in TOPSI. 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 – IoP and TOPSI 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 – IoP reports the value of exports as a proportion of the industry's turnover; UK trade in goods reports 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 IoP and the movements of that product reported by UK Trade

Further information on UK trade and how their data are compiled can be found in the Things you need to know section of the UK trade release.

This release has a revisions period back to January 2016. 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
• forecasts being replaced by actual data
• revisions to seasonal adjustment factors, which are re-estimated every month and reviewed annually

This revisions period is consistent with the National Accounts revisions policy.

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 Quality and Methodology Information report.

Table 1 shows the growth rates and contributions for the Index of Production (IoP) and main sectors for January 2017. The monthly estimate of total production decreased by 0.4%. There were mixed performances across the 4 production sectors; manufacturing provided the largest downward contribution to the contraction in growth supported by water supply, sewerage and waste management. These decreases were partially offset by increases in mining and quarrying and the electricity, gas steam and air conditioning sectors.

The 3 months-on-previous 3 months estimate of total production increased by 1.9% in January 2017, with increases in all 4 main sectors. The largest contribution came from manufacturing, the strongest growth in this sector since May 2010.

Figure 1 and figure 2 show that both the Index of Production and Index of Manufacturing followed a broadly upward trend following the economic downturn. Growth was more pronounced from the beginning of 2010, as the economy recovered, before a slight downturn during 2012. Since then, both production and manufacturing output have steadily risen but remain well below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008 by 6.7% and 3.3% respectively in the 3 months to January 2017.

In the 3 months-on-previous 3 months to January 2017, total production was estimated to have increased by 1.9%, following an increase of 0.4% in the 3 months to December 2016.

Manufacturing provided the largest contribution to the 3 months-on-previous 3 months increase, with the largest growth since May 2010 of 2.1%. The growth in manufacturing was broad-based across 11 of the 13 sub-sectors (Table 2).

The largest contribution to the increase in manufacturing in the 3 months to January 2017, came from pharmaceuticals (9.9%), which can be highly erratic.

Transport equipment provided additional strength, with motor vehicles, trailers and semi-trailers increasing by 2.3%.

The monthly estimate of total production decreased by 0.4% in January 2017 (Table 3), following an increase of 0.9% in the previous month. The largest downward contribution came from manufacturing, which fell by 0.9%.

The largest contribution to the fall in manufacturing came from a fall back in pharmaceuticals, decreasing by 13.5%, following an increase of 8.2% in the previous month. Pharmaceuticals can be highly erratic month-on-month due to the timing of contracts and we would suggest using a longer time series.

Transport equipment offsets some of the overall weakness within manufacturing. It provided the largest upwards contribution, increasing by 2.6%, within which motor vehicles, trailers and semi-trailers, increased by 4.7% and is the strongest growth for both since April 2016. Anecdotal evidence suggests a return to production following shut-downs in December 2016 as well as increased output.

Total production increased by 3.2% in January 2017 when compared with January 2016, all 4 main sectors provided strength (Table 4). The largest contribution came from manufacturing, which increased by 2.7%, following an increase of 4.2% in the previous period.

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); estimates are in current prices, unlike the chained volume measures published in the IoP release.

The Index of Production follows the Eurostat short-term statistics (STS) regulation for measuring output in production. The latest release of output in production and output in manufacturing are available from Eurostat and 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 2010 = 100 basis, while UK data are calculated on a 2013 = 100 basis.

Outside of the EU, the US Census Bureau releases Manufacturing and Trade Inventories and Sales. Accurate comparisons cannot be made between our publication and the US Census Bureau release as the UK data are calculated at chained volume indices which takes into account price changes, while the US publication is not adjusted for price changes.

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Short-term indicators economic commentary was published alongside this release, presenting new information on economic conditions in January 2017, with data available for output in production, construction and the trade balance.

The majority of data used to compile the manufacturing sector, and thus the Index of Production (IoP), is collected via the Monthly Business Survey (MBS). The MBS samples around 6,000 businesses every month. The data collected are turnover excluding Value Added Tax (VAT) and exports for some applicable industries. This data is then deflated using Producer Price Indices (PPI). Within the manufacturing sector we also receive direct volume data from: Department for Business, Energy and Industrial Strategy (BEIS) for fuel industries and the International Steel Statistics Bureau (ISSB) for steel industries.

The mining and quarrying sector is mainly comprised of data from BEIS, including volume of oil and gas extraction and coal extraction. The data used to produce the energy sector is also from BEIS and includes energy and gas supply output. A comprehensive list of the IoP source data can be found in the GDP(O) source catalogue.

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 3-monthly revisions
• Export proportions for manufacturing industries
• Index of Production weights 2013 equals 100
• Index of Production and sectors to 4 decimal places

The TOPSI: Production and services turnover is published alongside this release, providing current price estimates for industries collected by the MBS.

The Index of Production Quality and Methodology Information document 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

A revised version of this document is available this month.