Index of Production, UK: November 2015

• Total production output is estimated to have increased by 0.9% in November 2015 compared with the same month a year ago. There were increases in 3 of its 4 main sectors, with the largest contribution coming from mining & quarrying, which increased by 10.5%

• Manufacturing output decreased by 1.2% in November 2015 compared with November 2014. The largest contribution to the decrease came from the manufacture of machinery & equipment not elsewhere classified, which decreased by 13.7%

• Total production output is estimated to have decreased by 0.7% between October 2015 and November 2015. There were decreases in all of the main sectors, with manufacturing, mining & quarrying and electricity & gas having the largest contributions to the decrease

• Manufacturing output decreased by 0.4% in November 2015 compared with October 2015. The largest contribution to the decrease came from the manufacture of basic pharmaceutical products & pharmaceutical preparations, which decreased by 4.9%

• In the 3 months to November 2015, total production and manufacturing output increased by 0.2% and 0.5% respectively on the previous 3 months

• In the 3 months to November 2015, production and manufacturing were 9.1% and 6.1% respectively below their values reached in the pre-downturn GDP peak in Quarter 1 (Jan to Mar) 2008

• In this release, the only period open for revision was October 2015, in line with the National Accounts revisions policy

This bulletin presents the monthly estimates of the Index of Production (IoP) for the UK production industries, November 2015. The IoP is one of the earliest indicators of growth and it measures output in the manufacturing (the largest component of production), mining & quarrying, energy supply and water supply & waste management industries. The production industries account for 14.9% of the output approach to the measurement of gross domestic product.

IoP values are referenced to 2012 so that the average for 2012 is equal to 100. Therefore, currently an index value of 110 would indicate that output is 10% higher than the average for 2012. The index estimates are mainly based on a monthly business survey (MBS) of approximately 6,000 businesses, covering all the territory of the UK without geographical breakdown. The total IoP estimate and various breakdowns are widely used in private and public sector institutions. Care should be taken when using the month-on-month growth rates due to their volatility. All figures contained within this release are seasonally adjusted estimates, unless otherwise stated.

This release presents:

• the most recent IoP figures

• the economic context to the IoP

• GDP impact and components

• a supplementary analysis to the IoP

• spotlight

• background notes section including an assessment of the quality of the IoP, as well as an explanation of the terms used in this bulletin

Table 1 shows the main figures for this release. Figure 1 shows the production and manufacturing series from August 2013 to November 2015.

We have developed guidelines for measuring statistical quality; these are based upon the 5 European Statistical System (ESS) quality dimensions. The IoP in its current form adheres to these requirements. One important dimension for measuring statistical quality is accuracy. That is, the extent to which the estimate measures the underlying "true" value of the output growth (of the production industries) in the UK for a particular period. Although the IoP meets its legal requirements for statistical accuracy, still as in all survey-based estimates, by definition, its estimates are subject to statistical uncertainty or errors. These errors consist of 2 main elements; the sampling error and the non-sampling error.

For many well-established statistics we measure and publish the sampling error associated with the estimate, using this as an indicator of accuracy. The IoP however, is constructed from a variety of data sources, some of which are not based on random samples. As a result, we currently do not publish a measure of the sampling error associated with the IoP underlying data, mainly the monthly business survey (MBS). However, research is currently under way to attempt to measure the standard error and the results of this will be published on completion.

Non-sampling errors are not easy to quantify but can be caused by coverage issues, measurement, processing and non-response. The response rate gives an indication of the likely impact of non-response error on the survey estimates. From January 2015, the MBS response rates for data included in the IoP publication have been published in the background methods section of the statistical bulletin. This is to give further information of the percentages of the amount of turnover and questionnaire forms returned. We publish MBS historical response rates back to 2010 (34.5 Kb Excel sheet).

A further dimension of measuring accuracy is reliability, which can be measured using evidence from analyses of revisions to assess the closeness of early estimates to subsequent estimated values. Revisions are an inevitable consequence of the trade-off between timeliness and accuracy.

Figures for the most recent months are provisional and subject to revision in light of:

• 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

Revisions to the IoP are typically small (around 0.1 to 0.2 percentage points), with the frequency of upward and downward revisions broadly equal.

Further information on the most recent revisions analysis can be found in the revisions to IoP section and in the revision triangles section in the bulletin background note.

It should be noted that care should be taken when using the month-on-month growth rates, due to their volatility. Further information on the latest quality and methodology information (QMI) for the IoP can be found in the QMI paper (247.9 Kb Pdf). Furthermore, the IoP is constantly being reviewed and improved for accuracy and uncertainty as part of the GDP(O) improvement project; further details of improvements are published each year as part of a suite of Blue Book articles. A full list of the GDP(O) improvement project articles can be found on the Improvements page of our website.

After a large rise in August 2015, production output remained relatively stable until October 2015, before experiencing a decline in November 2015. This followed positive quarterly growth in Quarter 1 (Jan to Mar) 2015, Quarter 2 (Apr to June) 2015 and positive annual growth in 2014 (the first year seeing expansion since 2010). Overall the level of production output in the latest month is also higher than November 2014 by 0.9%.

Throughout 2015, manufacturing experienced alternating periods of expansion and contraction which have resulted in current manufacturing levels being lower than those experienced at the beginning of the year (for more information and analysis of the latest figures see the production and sectors supplementary analysis section of the bulletin).

Figure 2 shows that between Quarter 1 (Jan to Mar) 1997 and Quarter 3 (July to Sep) 2015 production and its main components followed different paths. Over this period electricity, gas, steam & air conditioning and water & waste management grew at compound average growth rates of 0.2% and 0.5% per quarter while production as a whole contracted at a compound average growth rate of -0.1% per quarter. Over the same period manufacturing was relatively flat while mining & quarrying contracted faster than production at a compound average growth rate of -1.0% per quarter.

During the economy’s downturn (Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2009), production and all of its components contracted. However, the path of mining & quarrying was broadly unaffected by the economy’s downturn with its output contracting only slightly faster than prior to the downturn. Between the economy’s peak in Quarter 1 (Jan to Mar) 2008 and the economy’s trough in Quarter 2 (Apr to June) 2009, manufacturing experienced the largest contraction (12.3%) followed by total production, water & waste management, mining & quarrying and electricity, gas, steam & air conditioning (by 10.6%, 8.8%, 7.3% and 3.5% respectively).

Following the economy’s downturn, total production and some of its components returned to growth, although mining & quarrying and electricity, gas, steam & air conditioning continued to contract at compound average growth rates of -1.1% and -0.2%, per quarter, respectively between Quarter 2 (Apr to June) 2009 and Quarter 3 (July to Sep) 2015.

Despite the growth seen in production and manufacturing since the economy’s downturn, in Quarter 3 (July to Sep) 2015, output remains 9.2% and 6.4% below Quarter 1 (Jan to Mar) 2008 levels. In Quarter 3 (July to Sep) 2015, mining & quarrying and electricity, gas, steam & air conditioning, which continued to decline following the downturn, were 29.4% and 9.1% below their respective values in Quarter 1 (Jan to Mar) 2008. Water & waste management remains the only production component which has surpassed its value in Quarter 1 (Jan to Mar) 2008 (by 8.2% as of Quarter 3 (July to Sep) 2015).

Headline GDP surpassed its pre-downturn peak in Quarter 2 (Apr to June) 2013, and services remains the only headline industry grouping to have achieved this. This is consistent with the historical trend of services growing at a faster rate than production and manufacturing, despite the fact that productivity in the production industries (manufacturing in particular) has on average grown at a faster rate than in the service industries since 1997 (more information can be found in Labour Productivity, Quarter 3 (July to Sep) 2015). The slower output growth and increased productivity, therefore, reflect the falling share of the labour force employed in manufacturing, which fell from 16.5% to 9.8% between 1997 and 2014 (Labour Market Statistics, December 2015, reference table EMP13).

Over the past year the manufacturing industry has experienced deflation, in terms of the prices manufacturers pay for materials and fuels used in the production process (input prices) and the prices they charge for the goods they produce (output prices). Input prices paid by UK manufacturers fell by 13.1% in the year to November 2015, from a fall of 12.3% in the year to October 2015. Output prices have also experienced deflation, falling by 1.5% in the year to November 2015, with crude oil impacting input prices. This feeds through to petroleum products, contributing to the decrease in their output prices (more information can be found in Producer Price Index, November 2015).

Figure 3 shows the share of nominal gross value added (GVA) accounted for by production in the UK and a selection of other major economies (more information on data for France, Germany, Italy, Japan and the USA can be found on the Organisation for Economic Co-operation and Development (OECD) website). In 1997, the share of nominal GVA accounted for by production in the UK was 23.3%, around the middle of the range relative to the other economies. By 2013, the UK had become relatively less reliant on production, as its share fell to 15.4% of nominal GVA.

The same trend was observed in manufacturing, where the share of nominal GVA fell from 18.4% in 1997 to 10.8% in 2013. Moreover, between 1997 and 2013 the composition of production in the UK changed slightly, with the share of production attributed to manufacturing decreasing from 78.8% in 1997 to 69.8% in 2013.

In this release, the only period open for revision was October 2015, in line with the National Accounts revisions policy (41.6 Kb Pdf) .

The estimates for the production industries are generally the first of the main components for the output approach to the measurement of GDP to be published (agriculture, construction and services are the other components). All the components are available for Quarter 3 (July to Sep) 2015.

Details of the data already published can be found in Table 2. The Retail Sales Index reported in Table 2 is not a direct component of the output approach to measuring GDP. It does, however, feed into estimates of GDP in 2 ways. Firstly, it feeds into the services industries when GDP is measured from the output approach. Secondly, it is a data source used to measure household final consumption expenditure which feeds into GDP estimates when measured from the expenditure approach.

Output in the construction industry for November 2015 will be published on 15 January 2016 and services output for the same period on 28 January 2016.

Total production

Total production output increased by 0.9% in November 2015 compared with November 2014 (Table 3). There were increases in 3 of the 4 main sectors, with the largest contribution coming from mining & quarrying output, which increased by 10.5% and contributed 1.3 percentage points to total production. This was followed by increases in water supply, sewerage & waste management and electricity, gas, steam & air conditioning output, which increased by 3.0% and 2.4% respectively. The only main sector to fall was manufacturing (the largest component of production), which decreased by 1.2% and contributed 0.9 percentage points to total production (Figure 4).

Between October 2015 and November 2015, total production decreased by 0.7% (Table 3), having remained unchanged at 0.0% in the previous month. The fall in total production reflected decreases in all of its 4 main sectors. The largest downward contribution was from manufacturing, which decreased by 0.4% and contributed 0.2 percentage points to total production (Figure 5). This was followed by falls in mining & quarrying, which decreased by 1.6% and contributed 0.2 percentage points; in electricity, gas, steam & air conditioning output, which decreased by 2.1%; and in water supply, sewerage & waste management output, which decreased by 0.5%.

Manufacturing

Manufacturing output decreased by 1.2% between November 2014 and November 2015 and provided a downward contribution of 0.9 percentage points to total production. Output decreased in 8 of the 13 manufacturing sub-sectors compared with a year ago (Figure 4). The manufacturing sub-sector with the largest downward contribution to total production output was the manufacture of machinery & equipment not elsewhere classified, which decreased by 13.7% and contributed 0.6 percentage points to total production. This was this industry’s 12th consecutive decrease since November 2014.

In contrast, the manufacturing sub-sector with the largest upward contribution to total production compared with a year ago was the manufacture of transport equipment, which increased by 6.4% and contributed 0.6 percentage points to total production. This was the 15th consecutive increase since August 2014. The largest contribution within this sub-sector came from the manufacture of motor vehicles, trailers & semi trailers, which increased by 8.1% and contributed 0.4 percentage points to total production.

Manufacturing output decreased by 0.4% between October 2015 and November 2015, having had an equivalent decrease the previous month. There were decreases in 10 of the 13 manufacturing sub-sectors (Figure 5). The manufacturing sub-sector with the largest downward contribution to total production was the manufacture of basic pharmaceutical products & pharmaceutical preparations, which decreased by 4.9% and contributed 0.3 percentage points to total production. This followed an increase of 2.5% in the previous month.

In contrast, the manufacturing sub-sector with the largest upward contribution to total production was other manufacturing & repair, which increased by 5.0% and contributed 0.3 percentage points to total production. This reversed a decrease of 5.4% in the previous month. The largest contribution within this sub-sector came from the repair & maintenance of aircraft & spacecraft, which increased by 28.1% and contributed 0.2 percentage points to total production. Anecdotal evidence cited increased contracts and exports as contributing factors.

Mining & quarrying

Mining & quarrying output increased by 10.5% between November 2014 and November 2015 and contributed 1.3 percentage points to total production. The sub-sector with the largest contribution was the extraction of crude petroleum & natural gas, which increased by 16.5% and contributed 1.5 percentage points to total production (Figure 4). This was due to the higher level of production of crude oil and gas compared with a year ago. Anecdotal evidence suggested limited maintenance to oil and gas facilities this year in comparison with the previous year, was a contributing factor.

Mining & quarrying output decreased by 1.6% in November 2015 compared, with October 2015, having increased by 1.0% the previous month. The sub-sector with the largest contribution was the extraction of crude petroleum & natural gas, which decreased by 1.8% and contributed 0.2 percentage points to total production (Figure 5).

Electricity, gas, steam & air conditioning

Electricity, gas, steam & air conditioning output increased by 2.4% in November 2015 compared with November 2014, the third consecutive increase since August 2015 and contributed 0.2 percentage points to total production (Figure 4). This reflected an increase in output in 1 of its 2 sub-sectors, electric power generation, transmission & distribution, which increased by 3.8% and contributed 0.2 percentage points to total production. Evidence cited an increase in demand, lower fuel mix costs and an increase in the use of cheaper renewables for generating electricity as contributing factors.

Electricity, gas, steam & air conditioning output decreased by 2.1% in November 2015 compared with October 2015 and contributed 0.2 percentage points to total production. This reflected a decrease in output in both of its sub-sectors. The largest contribution to the decrease came from the manufacture of gas & distribution of gaseous fuel through mains, which decreased by 7.6% and contributed 0.2 percentage points to total production (Figure 5). Evidence suggested that the temperature in November 2015, which was 2.0 degrees Celsius warmer than average, contributed to the decrease in demand.

Water & waste management

Water supply, sewerage & waste management output increased by 3.0% in November 2015 compared with November 2014 and contributed 0.3 percentage points to total production. This reflected increases in all of its 4 sub-sectors’ output (Figure 4), with the largest contribution coming from sewerage, which increased by 9.2% and contributed 0.2 percentage points to total production.

Water supply, sewerage & waste management output decreased by 0.5% between October 2015 and November 2015, with decreases in 3 of its 4 sub-sectors. The largest contribution to the decrease came from waste collection, treatment & disposal activities, which decreased by 2.6% and contributed 0.1 percentage points to total production (Figure 5).

Revisions to IoP

Revisions to the Index of Production follow the National Accounts Revisions policy (41.7 Kb Pdf). Revisions are caused by a number of factors including, but not limited to revisions to source data due to late responses to the Monthly Business Survey (MBS), actual data replacing forecast data and revisions to seasonal factors that are re-estimated every period. We produce revisions triangles of production and manufacturing growth to provide users with one indication of the reliability of this important indicator. Statistical tests are performed on the average revision to test if it is statistically significantly different from zero. Further information can be found in background note 6.

In this release of data, the only period open for revision was October 2015. In October 2015, there was a downward revision of 0.1 percentage points. The month-on-month growth rate was revised from a rise of 0.1% to 0.0%. Further details on the revisions to IoP components can be found in the IOP5R tables, located within the data section of this release.

The index of production (IoP) can be classified either by the standard industrial classification (SIC) 2007 (used in the previous editions of the spotlight) or by main industrial groupings (MIGs). While SIC 2007 classifies business establishments and other statistical units by the type of economic activity in which they are engaged, MIGs group industries in terms of demand-based products (capital goods, intermediate goods, consumer durable goods, consumer non-durable goods and energy).

According to the Eurostat glossary MIGs provide a breakdown at an intermediate level, that is, a level of detail which is between the 4 main production sectors (mining & quarrying, manufacturing, electricity, gas, steam & air conditioning and water & waste management) and their 34 sub-industries. Eurostat note that this classification is useful because the 4 main sectors may be too broad for some analysis, while the 34 sub-industries into which these 4 main sectors are divided, can be too numerous and varied to adequately represent the development of industry over time. Using the MIGs framework, the focus of this month’s spotlight was on production of intermediate goods.

Intermediate goods are typically defined as inputs to the production process, but unlike capital goods, are used up in production. Furthermore, as intermediate goods are used to produce other goods (or services), they differ from final goods which are instead typically consumed either by businesses as capital goods or by households as consumer goods.

Figure 6 shows that the index of production (IoP) and production of intermediate goods (IG) follow similar paths historically. Between Quarter 1 (Jan to Mar) 1997 and Quarter 2 (Apr to June) 2008, the output attributable to both IoP and IG experienced alternating periods of expansion and contraction, which resulted in the level of output being only slightly higher at the end of this period compared with the start. However, during the economy’s downturn (Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2009) IG experienced a larger contraction, decreasing by 19.5% compared with a 10.6% contraction for IoP.

Following the economy’s downturn (Quarter 2 (Apr to June) 2009 to Quarter 3 (July to Sep) 2015), IG grew at a compound average growth rate of 0.4% per quarter while production as a whole grew slower at a compound average growth rate of 0.1% per quarter. Despite the post-downturn recovery seen by IG and IoP, in Quarter 3 (July to Sep) 2015 they were 11.3% and 9.2% below their respective levels in Quarter 1 (Jan to Mar) 2008. The compound average growth is the rate at which a series would have increased or decreased if it had grown or fallen at a steady rate over a number of periods. This allows the composition of growth in the recent economic recovery to be compared.

The production of intermediate goods category consists of 18 sub-industries which are part of the mining & quarrying and manufacturing industries. Table 4 presents a selection of growth rates for output in these sub-industries. Prior to the downturn (Quarter 1 (Jan to Mar) 1997 and Quarter 1 (Jan to Mar) 2008) - when the production of intermediate goods was relatively stable - 10 of its 18 components contracted, with manufacture of textiles contracting the fastest at a compound average growth rate of 1.2% per quarter. Over the same period the manufacture of industrial gases, inorganics & fertilisers and manufacture of petrochemicals grew at the fastest rates (a compound average growth rate of 0.8% per quarter for both).

During the economy’s downturn (Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2009) - when IG contracted at a compound average growth rate of 4.2% per quarter - 16 of its 18 components contracted, with the manufacture of basic iron & steel contracting at the fastest rate (10.5% per quarter). The only sub-industries that grew on average during the downturn were the manufacture of prepared animal feeds and manufacture of dyestuffs, agro-chemicals (at growth rates of 1.3% and 0.9% per quarter respectively).

Following the downturn (Quarter 2 (Apr to June) 2009 to Quarter 3 (July to Sep) 2015), the production of intermediate goods and 10 of its components recovered, with other mining & quarrying plus mining support service activities growing the fastest (1.7% per quarter). In contrast the manufacture of dyestuffs, agro-chemicals contracted the quickest, at a compound average growth rate of 1.3% per quarter.

Figure 7 compares the volume of production of intermediate goods in the UK, the European Union (EU 28) and a selection of other major European economies (more information on France, Germany and Italy can be found on the Eurostat website).

Between Quarter 1 (Jan to Mar) 2000 and Quarter 1 (Jan to Mar) 2008, the UK and Italy’s production of intermediate goods was relatively stable, while Germany, EU 28 and France grew at compound average growth rates of 0.8%, 0.5% and 0.1% per quarter respectively. During the UK economy’s downturn (Quarter 1 (Jan to Mar) 2008 and Quarter 2 (Apr to June) 2009), all of the economies experienced significant contractions in output, with the UK contracting the least (by 19.5%) while Italy contracted the most (by 32.4%). Following the economy’s downturn (Quarter 2 (Apr to June) 2009 to Quarter 3 (July to Sep) 2015) all 5 economies experienced growth but due to the sharp contraction during the economy’s downturn in Quarter 3 (July to Sep) 2015 they remained below their respective levels in Quarter 1 (Jan to Mar) 2008.