Index of Production, UK: November 2017

• This is the first Index of Production release to incorporate Value Added Tax (VAT), using data from over 75,000 businesses across 64 industries, on top of the returns from the 6,000 sample each month from the Monthly Business Survey.

• In the three months to November 2017, the Index of Production was estimated to have increased by 1.2% compared with the three months to August 2017, due mainly to a rise of 1.4% in manufacturing.

• There was strong broad-based growth across manufacturing in the three months to November 2017; the largest contribution came from machinery and equipment not elsewhere classified, which included renewable energy equipment, with an increase of 5.6%.

• Total production output increased by 3.3% for the three months to November 2017 compared with the same three months to November 2016, with manufacturing providing the largest upward contribution, increasing by 3.9%; within this sector, transport equipment provided the largest upward contribution, increasing by 6.7%.

• In November 2017, total production was estimated to have increased by 0.4% compared with October 2017; energy supply provided the largest contribution, increasing by 3.2%, due mainly to the temperature being warmer than average in October 2017 and colder than average in November 2017.

• The earliest period open for revision in this release was January 2016; revisions to Index of Production data up to Quarter 3 (July to Sept) 2017 are consistent with Quarterly national accounts: July to September 2017, published on 22 December 2017.

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.

This was the first time Value Added Tax (VAT) data were used in the IoP publication. The VAT data were used to supplement data from the Monthly Business Survey (MBS) from January 2016 to June 2017. VAT data were introduced across 64 production industries for small- and medium-sized businesses. Further information on the use of VAT can be found in section 9.

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 MBS of approximately 6,000 businesses. For periods January 2016 to June 2017, these have been supplemented with turnover data from HM Revenue and Customs (HMRC) VAT returns. 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 MBS production industries dataset, which was published alongside this release. Note that the MBS production industries dataset does not contain data from VAT returns, which have been included in the IoP.

The MBS 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 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 was open to revision from January 2016. This is in line with the updated National Accounts Revisions Policy. The use of VAT data as a replacement for the MBS data for some small- and medium-sized businesses has created revisions across the period where VAT turnover has been implemented, from January 2016 to June 2017.

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

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 below their level reached in the pre-downturn gross domestic product (GDP) peak in Quarter 1 (Jan to Mar) 2008, by 5.1% and 1.1% respectively in the three months to November 2017.

Table 1 shows the growth rates and contributions for the IoP and main sectors for November 2017. The three months-on-previous three months estimate of total production rose by 1.2% in November 2017, with rises in three of the four main sectors. Manufacturing provided the largest upward contribution, increasing by 1.4% and was supported by rises in mining and quarrying, and energy supply.

The monthly estimate of total production increased by 0.4%. There were rises in two of the four main sectors, with energy supply providing the largest upward contribution, increasing by 3.2%. This was supported by manufacturing, which rose by 0.4%.

In the three months‐on‐previous three months to November 2017, total production was estimated to have increased by 1.2% (Table 2); this followed an increase of 1.2% in the three months to October 2017 and was the fifth consecutive increase.

Manufacturing provided the largest upward contribution to total production, rising by 1.4%, due to broad-based strength within the sector and following an increase of 1.3% in the three months to October 2017. Out of the 13 sub-sectors, 12 experienced growth over this period. Machinery and equipment not elsewhere classified provided the largest contribution, rising by 5.6%, the strongest growth since November 2010 when it rose by 6.4%. Evidence collected from some of the larger businesses in this industry confirmed that increased turnover was due to work carried out on large-scale projects including renewable energy. In the three months to November 2017, compared with the three months to August 2017, increases in export turnover of 5.3% and domestic turnover of 13.4% were reported by this industry; this was published today in the Monthly Business Survey (MBS) production industries dataset. However, it is important to note that this dataset is based on current prices and does not reflect the impact of price changes, and is not seasonally adjusted.

The increase of 2.1% in transport equipment was a continuation of the recent strength in the index level for this sub-sector, as evidenced in our UK Index of Production: October 2017 bulletin. Motor vehicles, trailers and semi-trailers provided the largest contribution to growth in this sub-sector; there was a strong increase in exports during October 2017, which contributed to the rise and has offset some of the fall seen in the month of November 2017, where domestic production of motor vehicles fell.

Total production increased by 3.3% in the three months to November 2017, compared with the same three months to November 2016 (Table 3). This is the 21st consecutive increase since March 2016.

The largest upwards contribution came from manufacturing, which increased by 3.9%, due mainly to broad-based strength, with 9 of the 13 sub-sectors increasing. This was the strongest increase since March 2011, when it increased by 4.6%. This was supported by increases of 7.5% in mining and quarrying and 0.9% in water supply and waste management.

The monthly estimate of total production increased by 0.4% in November 2017 (Table 4). This is the eighth consecutive monthly rise and there were rises in two of the four main sectors.

Energy supply provided the largest upward contribution, increasing by 3.2%. Within this sector, gas distribution and supply rose by 6.1%. The variation in the average temperature in November 2017 compared with October 2017 contributed to this rise. The Met Office reported that for November 2017, the provisional UK mean temperature was 5.8 degrees Celsius, which was 0.4 degrees Celsius below the 1981 to 2010 long-term average. For October 2017, the temperature was 11.3 degrees Celsius, this was 1.8 degrees Celsius above the 1981 to 2010 long-term average.

Manufacturing output also provided an upward contribution to the month-on-month increase, rising by 0.4%, continuing the recent increases in this sector, rising for the seventh consecutive month.

Partially offsetting the broad-based strength within manufacturing was a fall of 3.4% in transport equipment. The downward contribution came from a decrease of 7.1% in motor vehicles, trailers and semi-trailers; the largest fall since August 2014 when it fell by 7.7%. In the Monthly Business Survey (MBS), containing non-seasonally adjusted current price data, a decrease in export turnover of 9.9% was reported by this sub-industry for November 2017 compared with October 2017. This was published in our MBS production industries dataset. The fall in export turnover followed a rise in October 2017 to a record level, exceeding £4.0 billion for the first time, while the value of exports fell back to £3.7 billion in November 2017. Further commentary on the relative strength of exports, in comparison with home turnover for this sub-industry, can be found in our UK Index of Production: October 2017 bulletin.

In this release, periods back to January 2016 were open for revision. The revisions are consistent with the revisions to Index of Production (IoP) already published in the Quarterly national accounts: July to September 2017, published on 22 December 2017.

This release contains the incorporation for the first time of administrative Value Added Tax (VAT) turnover to estimate the output of small businesses, from January 2016 to June 2017. VAT data were introduced across 64 production industries for small- and medium-sized businesses. Further information on the use of VAT data can be found in section 9.

As this was the first IoP publication following the introduction of VAT data along with the usual reasons for revisions to data from January 2016, there may be larger revisions than in an ordinary publication (see Table IOP5R, which shows the revisions to IoP estimates against the previously published data).

There was an upward revision for the month of October 2017 to total IoP, from 0.0% to 0.2%. This was mainly due to an upward revision in manufacturing, from 0.1% to 0.3%. Out of the 13 manufacturing sub-sectors, 8 were revised upwards, due mainly to late responses to the Monthly Business Survey.

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 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 take into account price changes, while the US publication is not adjusted for price changes.

This was the first release, along with the Quarterly national accounts: July to September 2017, to use Value Added Tax (VAT) data for periods January 2016 to June 2017. This has been used alongside the Monthly Business Survey data in the production of gross domestic product (GDP). Further information on the use of VAT data was published on 22 December 2017 in an article, VAT turnover implementation into UK National Accounts: December 2017 update. The supply of VAT turnover data will be updated at the final estimate of GDP within the quarter, in the Quarterly national accounts publication.

We published the Short-term economic indicators commentary alongside this release (on 10 January 2018), presenting new information on economic conditions in November 2017, with data available for output in production, construction and the trade balance.

We published the Monthly economic commentary: December 2017 on 22 December 2017, 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 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: 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.

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 sectors to four decimal places
• Monthly Business Survey (MBS) 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.