Index of Production, UK: July 2018

• The fall of 0.5% in total production output for the three months to July 2018, compared with the three months to April 2018, is due primarily to a fall of 4.5% in electricity and gas supply, resulting from less demand due to higher than average temperatures during May to July 2018.

• In the three months to July 2018, manufacturing fell by 0.1%, due primarily to a fall in machinery and equipment and metal products.

• In July 2018, total production output was estimated to have increased by 0.1% compared with June 2018, due primarily to a rise in mining and quarrying of 3.3%; within oil and gas extraction, there was a return to production, following planned maintenance during June 2018.

• The monthly decrease in manufacturing output of 0.2% was due mainly to a fall of 7.5% in basic pharmaceutical products; this was largely offset by widespread strength throughout the rest of the sector, with 8 of the 13 sub-sectors rising.

• In the three months to July 2018, total production output increased by 1.1% compared with the same three months to July 2017, due primarily to a rise in manufacturing of 1.3%, supported by a rise in water and sewerage of 4.8%.

This July 2018 release contains no revisions to previously published data and is consistent with the National Accounts Revisions Policy.

Further to this release, the Quarterly national accounts published on 28 September 2018 will include revised production data from January 2017 to June 2018. The data that will be published on 28 September 2018 will also include Value Added Tax (VAT) data for the first time in Quarter 1 (Jan to Mar) 2018.

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.

On 15 June 2017, we announced that automatic pre-release access to official statistics would end from 1 July 2017 and would only be considered in exceptional circumstances, where denying such access would significantly impede the taking of action in the public interest. In accordance with this, exceptional pre-release access for the Bank of England has been granted for data related to this release.

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 6.1% and 2.1% lower, respectively, in the three months to July 2018 than the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008.

Total production output for the latest three months to July 2018, compared with the three months to April 2018, has decreased by 0.5% due primarily to:

• a fall of 4.5% in electricity and gas supply, driven by a fall of 10.5% within gas supply, with warmer than average temperatures for May to July 2018 leading to less demand
• a fall of 5.3% within machinery and equipment not elsewhere classified, due to a stronger impact during the three months to April 2018 from infrastructure projects
• the continuation of recent longer-term weakness within basic metals and metal products, which fell by 3.0% and is the fifth consecutive fall since the three months to February 2018
• oil and gas extraction, which fell by 2.2%, due mainly to maintenance in May 2018 and June 2018

The overall three-monthly fall is partially offset by a 2.3% rise in water supply and sewerage, due mainly to an increase of 4.1% within waste collection. It should be noted that there is no responder-led evidence that the warmer than average temperatures during May 2018 to July 2018 has directly impacted on the growth in water supply, which rose by 0.8%.

Over the longer-term, the fall in manufacturing was the fifth consecutive three-monthly decrease within this sector since February 2018. This is despite recent signs of a slight recovery in manufacturing output, following two consecutive periods of monthly growth during May 2018 and June 2018.

In previous bulletins we have alerted users to a marked slowdown in output in this sector over the latter part of 2017 and the beginning of 2018. This slowdown 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 3).

Figure 3 shows that growth in export turnover peaked in January 2017 at 18.2% but has since declined to 0.3% in May 2018. In contrast, domestic turnover growth peaked in March 2017 at 5.0% but since then has consistently remained below that peak. Notably, for the three months to May 2018 compared with the same three months to May 2017, export growth fell behind domestic growth. However, both export and domestic growth increased over recent periods.

Monthly total production output has risen by 0.1% in July 2018 and is the second consecutive increase following growth of 0.4% last month. The increase this month is due primarily to:

• a rise of 3.3% in mining and quarrying, driven by a 5.0% increase in oil and gas extraction, following a return to production following planned maintenance during June 2018
• an increase of 2.0% in basic metals and metal products, driven by fabricated metal products other than weapons
• the motor vehicles, trailers and semi-trailers sub-industry increasing by 2.5%; manufacture of engines increased during July 2018
• the impact of infrastructure projects during July 2018 within the rest of the repair and installation sub-industry, which rose by 5.2%

It should also be noted that supporting strength from food products, beverages and tobacco, which rose by 0.7%, is due mainly to increases of 7.7% within soft drinks, mineral waters and bottled water and 1.9% within alcoholic beverages. Responder-led evidence indicated that there was increased demand for products across these sub-industries due to the warmer than average temperature during July 2018.

The Met Office reported that the provisional UK mean temperature for July 2018 was 17.3 degrees Celsius, which is 2.2 degrees Celsius above the 1981 to 2010 long-term average, making it provisionally the joint-second warmest July (alongside 1983, but below 2006) in a series from 1910. It is possible that the World Cup had a positive impact on alcohol production and consumption. However, we received no responder-led evidence to indicate that this was an underlying factor behind the overall strength.

In contrast, the overall fall in manufacturing of 0.2% is driven by a decrease of 7.5% within basic pharmaceutical products but follows an increase last month of 4.5%, indicating the volatile nature of this sub-sector. The fall in pharmaceuticals masks underlying strength across the rest of manufacturing, with 8 of the 13 sub-sectors increasing on the month.

Total production output for the three months to July 2018 has increased by 1.1%, compared with the same three months to July 2017, with two of the four main sectors rising. Overall strength is due primarily to:

• an increase of 1.3% in total manufacturing output, driven by a 12.0% rise within computer, electronic and optical equipment; supported by widespread strength throughout the sector with 8 of the 13 sub-sectors increasing
• increases for total manufacturing domestic and export turnover of 2.2% and 4.0% respectively; these increases were published today within our Monthly Business Survey turnover in production industries dataset (please note that these are current price, non-seasonally adjusted data)
• a rise of 4.8% within water and sewerage

Partially offsetting overall growth are falls for mining and quarrying of 1.8% and electricity and gas supply of 1.0%. Within electricity and gas supply, the fall of 3.1% within the gas distribution and supply sub-industry is due primarily to reduced demand, due to higher temperatures for May to 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 September 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.