Index of Production, UK: March 2018

• In the three months to March 2018, the Index of Production increased by 0.6% compared with the three months to December 2017, due mainly to a rise of 2.5% in energy supply; this was supported by rises in mining and quarrying of 2.2% and manufacturing of 0.2%.

• The three-monthly rise in manufacturing is due mainly to rises in machinery and equipment not elsewhere classified (4.1%), transport equipment (1.7%) and computer, electronic and optical equipment (4.4%).

• In the three months to March 2018 growth has fallen due mainly to a reduction in the growth rate of both export and domestic turnover, and a slow-down in basic metals and metal products due to a high growth in the three months to December 2017.

• In March 2018, total production was estimated to have increased by 0.1% compared with February 2018.

• Manufacturing fell by 0.1% in March 2018 compared with February 2018. Survey led evidence suggests that the heavy snowfall in March 2018 had no significant impact on manufacturing output.

• In the three months to March 2018, the Index of Production increased by 2.0% compared with the same three months to March 2017.

• In this release, the Index of Production estimate for Quarter 1 (Jan to Mar) 2018 was revised down by 0.1% from the increase of 0.7% published in the Gross domestic product, preliminary estimate: January to March 2018; when combined with the publication of the Construction output in Great Britain: March 2018 today (10 May 2018), the headline gross domestic product (GDP) growth rate has not been impacted to one decimal place.

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 the Monthly Business Survey (MBS) of approximately 6,000 businesses. 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 open for revision from January 2018. 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.

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 below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008, by 5.1% and 0.8% respectively in the three months to March 2018.

Table 1 shows the growth rates and contributions for the IoP and main sectors for March 2018.

The three months-on-previous three months estimate of total production rose by 0.6% in March 2018, with three of the four main sectors increasing. The largest upward contribution came from energy supply, which rose by 2.5%, due mainly to lower than average temperatures.

The monthly estimate of total production increased by 0.1%. Energy supply provided the largest upward contribution, rising by 2.6%, due mainly to the lower than average temperature in both February and March 2018. In contrast, mining and quarrying fell by 2.4%. Manufacturing fell by 0.1%, with 7 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.

In the three months‐on‐previous three months to March 2018, total production was estimated to have increased by 0.6% (Table 2) and follows an increase of 0.4% in the three months to December 2017. Of the four main sectors, three sectors displayed increased output.

Following a decrease of 0.4% in the three months to December 2017, energy supply provided the largest upward contribution to total production in the three months to March 2018, rising by 2.5%. This was the strongest growth since the three months to January 2017, when it increased by 4.0%. Within this sector, gas supply increased by 7.5%, due mainly to lower than average temperatures.

Supporting the overall rise in total production output was the manufacturing sector, which increased by 0.2% and followed a rise of 1.3% for the three months to December 2017.

The overall three-monthly rise in manufacturing is not broad-based, with only 5 of the 13 manufacturing sub-sectors experiencing growth. There were notable rises in: machinery and equipment not elsewhere classified (4.1%), transport equipment (1.7%), and computer, electronic and optical products (4.4%). In contrast, electrical equipment fell by 8.9% and this was the largest three-monthly fall since April 2009. This is due mainly to broad-based weakness compounded by some re-structuring.

Although heavy snowfall affected much of the UK during March 2018, survey-led evidence suggested that this had no significant impact on overall growth during the three months to March 2018.

Despite the sustained period of strength within this sector during the latter part of 2017, there has been a slowdown since January 2018. The manufacturing growth for Quarter 1 (Jan to Mar) 2018, although positive, provides a much weaker contribution to total production output compared with Quarter 4 (Oct to Dec) 2017.

Figure 3 highlights the change in contribution to total production growth from manufacturing and for each sub-sector, between Quarter 4 2017 compared with Quarter 1 2018. Out of the 13 sub-sectors, 7 showed weaker contributions when compared with Quarter 4 2017. The basic metals and metal products sub-sector provided the largest change in contribution, due mainly to very strong growth during Quarter 4 2017 on infra-structure projects within the fabrication of metals industry.

The recent slowdown within manufacturing is due to a weakening in export and domestic turnover. As highlighted previously, manufacturing output over a longer time span has slowed and this trend 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 during 2016, 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 3.2% for the three months to March 2018, compared with the same three months to March 2017 – the weakest growth since April 2016 when export turnover increased by 2.6%. Domestic growth has fallen to 0.9% in March 2018.

Total production increased by 2.0% in the three months to March 2018, compared with the same three months to March 2017 (Table 3). Energy supply rose by 3.9%, due mainly to increased demand for gas driven by the lower than average temperatures during February and March 2018.

The largest upward contribution came from manufacturing, which increased by 2.5%. Within this sector, basic metals and metal products provided the largest upward contribution, increasing by 6.7%, continuing the recent strength in this sub-sector since April 2017.

Increases in total turnover were also reported for the three months to March 2018, compared with the same three months to March 2017, for the three industries within basic metals and metal products. These increases were published today (10 May 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.

Machinery and equipment not elsewhere classified; transport equipment; and other manufacturing and repair provided supporting strength.

The monthly estimate of total production increased by 0.1% in March 2018 (Table 4). This follows an increase of 0.1% in February 2018.

The largest contribution came from energy supply, which increased by 2.6% and follows an increase of 3.4% in February 2018. Within this sector, both industries displayed increased output, with gas supply rising by 1.9% and electricity generation rising by 3.0%. The below-average temperature during March 2018 had a positive impact on energy supply. According to the Met Office, the provisional UK mean temperature was 3.8 degrees Celsius in March 2018, which is 1.6 degrees Celsius below the 1981 to 2010 long-term average.

In contrast and largely offsetting growth from energy supply, was a fall in mining and quarrying. Output fell by 2.4%, due mainly to crude petroleum and natural gas, which decreased by 2.5%. Manufacturing output decreased by 0.1%, the second consecutive fall in this sector for the first time since February 2017, which continues a slowdown in output since the beginning of 2018. Within this sector, 7 of the 13 sub-sectors decreased on the month; led by pharmaceuticals, which fell by 5.2%.

Despite heavy snowfall in most areas of the UK during March 2018, there was no responder-led evidence via the Monthly Business Survey (MBS) to suggest that the snowfall had any significant impact.

In our next release, IoP: April 2018, no previous periods will be open for revision. This is in line with the standard National Accounts Revisions Policy. The IoP: May 2018 release will include methodological updates and revisions back to 1997 and is our Blue Book consistent publication. 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.

We published the Short-term economic indicators commentary alongside this release (on 10 May 2018), presenting new information on economic conditions in 2018, with data available for output in production, construction and the trade balance.

We published the Monthly economic commentary: April 2018 on 27 April 2018, presenting analysis of the latest estimate of gross domestic product and economic commentary for prices, short-term indicators and labour market indicators to complement theme day economic commentary.

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. Eurostat and UK data are calculated on a 2015 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 takes into account price changes, while the US publication is not adjusted for price changes.

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:

• 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 2015 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

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.