Index of Production, UK: July 2017

• In the 3 months to July 2017, the Index of Production was estimated to have increased by 0.3% compared with the 3 months to April 2017, due mainly to a rise of 2.2% in mining and quarrying.

• The largest contribution to the rise in mining and quarrying in the 3 months to July 2017 came from oil and gas extraction, which rose by 2.6%, due mainly to a lack of maintenance, which has historically taken place in the month of June, although in some previous years this maintenance has occurred later in the summer.

• In July 2017, total production was estimated to have increased by 0.2% compared with June 2017, due mainly to a rise of 0.5% in manufacturing; the largest contribution to the rise came from transport equipment, which rose by 7.6%.

• The monthly increase within transport equipment was due to motor vehicles, trailers and semi-trailers, which rose by 13.7%, the strongest growth since March 2009; evidence suggested that the production of new models contributed to the growth.

• Total production output for July 2017 compared with July 2016 increased by 0.4%, with manufacturing providing the largest upward contribution, increasing by 1.9%; mining and quarrying partially offset the increase in total production, decreasing by 6.5%.

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 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 today’s (8 September 2017) publication of TOPSI: Turnover in production and services industries.

As part of the Short-term Economic Indicators theme day, TOPSI 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 – 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; 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 IoP 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” section of the UK trade release.

In this release, no previous periods are open for revision. This is in line with the standard 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
• 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.

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. Since then, both production and manufacturing output have 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 7.6% and 4.3% respectively in the 3 months to July 2017.

Table 1 shows the growth rates and contributions for the IoP and main sectors for July 2017. The monthly estimate of total production rose by 0.2%. There were rises in two of the four main sectors, with manufacturing providing the largest upward contribution, increasing by 0.5%, while electricity and gas supply rose by 0.7%.

The 3 months-on-previous 3 months estimate of total production rose by 0.3% in July 2017, with rises in three of the four main sectors. Mining and quarrying provided the largest upward contribution, rising by 2.2%.

In the 3 months‐on‐previous 3 months to July 2017, total production was estimated to have increased by 0.3% (Table 2) with rises in three of the four main sectors and follows a decrease of 1.2% in the 3 months to April 2017.

Mining and quarrying provided the largest upward contribution to total production, rising by 2.2%. Within this sector oil and gas extraction rose by 2.6%, due mainly to a lack of maintenance in June 2017. The maintenance has usually taken place in the month of June, although in some years this maintenance has occurred later in the summer.

Manufacturing fell by 0.1%, with the largest downward pressure from transport equipment, which fell by 1.7% due to falls in May 2017 and June 2017.

The monthly estimate of total production increased by 0.2% in July 2017 (Table 3). There were rises in two of the four main sectors.

Manufacturing provided the largest upward contribution, increasing by 0.5%, with 6 of the 13 sub-sectors rising. This was the first significant monthly rise in this sector since December 2016 and follows flat growth (0.0%) in June 2017.

Transport equipment provided the largest upward contribution to the growth in manufacturing, rising by 7.6%. Within this sub-sector, motor vehicles, trailers and semi-trailers rose by 13.7%, the strongest growth since March 2009, when it rose by 16.1%. Evidence suggested that the production of new models contributed to the growth this month. This followed falls of 4.4% and 6.7% in May 2017 and June 2017 respectively.

The fall of 1.2% in mining and quarrying is due mainly to oil and gas extraction, which fell by 1.4%. This fall is largely due to a higher than usual increase in June, as there was an absence of maintenance during that period, which historically has taken place in the month of June (see our June 2017 Index of Production bulletin for further information).

Total production increased by 0.4% in July 2017 compared with July 2016; two of the four main sectors provided upwards contributions (Table 4).

The largest upward contribution came from manufacturing, which increased by 1.9%. There was broad-based strength throughout the sector, with 9 of the 13 sub-sectors increasing. The largest upward contribution came from transport equipment, which rose by 6.1%. Within this sub-sector, motor vehicles, trailers and semi-trailers rose by 4.9%. As reported by this industry in the Monthly Business Survey, published in Turnover in production and services industries, there were increased non-seasonally adjusted domestic and export sales of 13.8% and 12.9% respectively.

Mining and quarrying partially offset the overall increase in production output, decreasing by 6.5%. Oil and gas extraction provided the largest downwards contribution, which fell by 7.5% largely due to maintenance in June 2016 pushing output into July 2016. The maintenance has not been carried out in June or July 2017.

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 2010 equals 100 basis, while UK data are calculated on a 2013 equals 100 basis.

Outside the EU, the US Census Bureau releases Manufacturing and Trade Inventories and Sales reports. 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 take into account price changes, while the US publication is not adjusted for price changes.

In this release, the Monthly Business Survey, which underpins the current prices data feeding into this release, contained 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 will publish an article detailing the impact on 29 September 2017.

In our previous bulletin, we announced that on 31 August 2017 we aimed to publish further analysis on the Impact of sterling devaluation on prices and turnover in the manufacturing sector since June 2016. This article will now be published on 15 September 2017.

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

We launched a public consultation, which closes 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 2 weeks earlier and become part of the Short-term Economic Indicator theme day, enabling a monthly GDP estimate.

VAT turnover implementation into National Accounts: June Update was published on 1 June 2017. This update explains that the first use of Value Added Tax (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.

Blue Book 2017

The Index of Production for August 2017, due to be published on 10 October 2017, will include revisions back to 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 2 years of chain-linking weights for 2015.

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. 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 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
• 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 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