Index of Production, UK: November 2018

• The decrease of 0.8% in total production output for the three months to November 2018, compared with the three months to August 2018, is due to widespread weakness led by falls of 0.8% in manufacturing and 1.8% in water and waste; this is the first time since October 2012 that all four main sectors fell.

• The decrease of 0.8% in three-monthly total manufacturing output is due to 10 of the 13 sub-sectors falling where the largest downward contribution came from a fall in transport equipment of 1.1%, which was due to a fall in motor vehicles of 2.4%.

• In November 2018, total production output fell by 0.4%, compared with October 2018, due to a fall of 0.3% in manufacturing, supported by falls of 1.1% electricity and gas and 1.3% in mining and quarrying.

• The monthly decrease in manufacturing output of 0.3% was due to 8 of the 13 sub-sectors falling; the largest downward contribution came from basic metals and metal products, falling by 3.6%

• In the three months to November 2018, total production output decreased by 0.9% compared with the same three months to November 2017; this is the weakest growth in total production output since August 2013 and the first time since October 2012 there has been widespread weakness across all four sectors.

This November 2018 release contains revisions from January 2017, where revisions published between January 2017 and September 2018 are consistent with the GDP quarterly national accounts: July to September 2018, published on 21 December 2018, also consistent with the National Accounts Revisions Policy.

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.

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.

This release includes VAT data for Quarter 2 (April to June) 2018.

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 since then but remain 6.5% and 2.0% lower, respectively, in the three months to November 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 November 2018, compared with the previous three months to August 2018, decreased by 0.8%. This is the weakest three-monthly growth since May 2017, when output also fell by 0.8%.

The fall is due primarily to a fall of 0.8% in manufacturing output, supported by falls in the three other main sectors, this is the first time widespread weakness has been seen in all four main sectors since October 2012.

Total manufacturing output is the weakest since the three months to May 2018, when it fell by 0.9%.

Of the 13 sub-sectors within manufacturing, 10 decreased, highlighting widespread weakness throughout the sector.

Providing the largest downward contribution was transport equipment, which fell by 1.1% due to a fall of 2.4% in motor vehicles, trailers and semi-trailers. The weakness was driven by the impact of shutdowns within this industry in October 2018 in addition to reduced production in November 2018. Although responder evidence has indicated this has been mitigated somewhat by the use of inventories.

Since the end of 2016, demand for new cars in the UK has weakened as highlighted in the latest Index of Services (IoS) bulletin published today (11 January 2019). Responder-led feedback suggests the impact of Vehicle Excise Duty changes in April 2017 impacted on demand for diesel cars which in turn resulted in displacement to petrol vehicles and increased demand for alternative fuel vehicles.

From September 2018, responder feedback noted that the introduction of the worldwide harmonised light vehicle test procedure (WLTP) impacted production. These tests were applied to all new car registrations starting from September 2018 and are part of new regulations that are used to measure fuel consumption and CO2 emissions from passenger cars, as well as their pollutant emissions.

In addition, weak domestic sales and a gradual decline in export sales in this industry, since a peak in October 2017 (see our monthly business survey in production industries), have contributed to the recent decline in the index level with anecdotal evidence from respondents confirming weakening global demand (Figure 3).

The second-largest contribution was pharmaceutical products, which fell by 2.2%, due mainly to strength during June 2018. However, it should be noted that growth within this sub-sector can be volatile.

Notable supporting weakness came from food, drink and tobacco, which fell by 1.0%, due primarily to strength from alcoholic beverages and soft drinks during the three months to August 2018. The processing and preserving of fish, fruit and vegetables, fell by 3.7% due to widespread weakness and is the strongest fall within this sub-industry since December 2013, when it fell by 5.1%.

Water and waste fell by 1.8% due to equal downwards contributions from the water collection and sewerage sub-industries. Less demand for water, following a fall in temperatures during the three months to November 2018, is the primary reason for the weakness.

The fall of 0.6% within electricity and gas supply is due to a decrease of 1.9% from electricity generation and distribution driven by less demand than expected in the three months to November 2018, partially offset by a rise in supply of gas of 3.0%.

Electricity supply is impacted by demand, mainly due to temperature, as well as the fuel mix used to generate electricity. When comparing the monthly growths in October and November 2018 compared with the same months a year ago, outputs have decreased and the fuel mix has become more expensive. In this period, more gas was used to generate electricity, which is an expensive fuel type, therefore contributing to the fall in the electricity index.

Mining and quarrying fell by 1.1%, driven by a decrease of 1.8% in oil and gas extraction, due mainly to periods of maintenance during September and November 2018.

Monthly total production output decreased by 0.4% in November 2018, the third consecutive fall in output since August 2018. The weakness this month is due primarily to total manufacturing output decreasing by 0.3% and supported by falls in electricity and gas of 1.1% and mining and quarrying of 1.3%.

This is the fifth consecutive monthly fall in manufacturing output since June 2018. There is a mixed picture within manufacturing, with 6 of the 13 sub-sectors displaying negative contributions and four positive contributions. Of these, and driving the overall fall in manufacturing output, is a decrease of 3.6% from basic metals and metal products. Within this sub-sector, fabricated metal products falls by 3.7% due to widespread weakness throughout the sub-industry.

Providing supporting negative contribtions to growth were food, drink and tobacco, which fell by 0.9%, electrical equipment, which fell by 3.4% and machinery and equipment not elsewhere classified, which fell by 0.6%.

Partially offsetting the overall fall in manufacturing output and providing the largest upward contribution, is a rise of 3.2% from pharmaceutical products, primarily driven by strong exports. This follows a fall of 2.7% last month, highlighting the frequent volatility within this industry. Electricity and gas fell by 1.1%, due to reduced demand. Electric generation and distribution decreased by 1.3% (see Section 4 for an explanation on the factors impacting on weakness for this sub-industry). The Met Office reports that for November 2018, the provisional UK mean temperature was 7.3 °C, which is 1.1 °C above the 1981 to 2010 long-term average.

Mining and quarrying decreased by 1.3%, due mainly to a fall 1.3% in oil and gas extraction, following a period of maintenance during November 2018.

Total production output for the three months to November 2018 has decreased by 0.9%, compared with the same three months to November 2017, driven by a fall in output across all four sectors for the first time since October 2012. It is also the first time total production output has fallen since March 2016.

The fall in output for the mining and quarrying sector of 2.4%, is due mainly to maintenance in September and November 2018.

Electricity and gas also fell by 2.4%, due primarily to reduced demand. This was due to a stronger impact from warmer than average temperatures during November 2018, where the average temperature was 7.3 degrees Celsius.

This was 1.1 degrees Celsius above the long-term average, compared with November 2017, at 5.8 degrees Celsius, which was 0.4 degrees Celsius below the long-term average.

Providing the largest downward contribution is manufacturing, which fell by 0.4% attributable to 8 of the 13 sub-sectors decreasing. The fall in manufacturing is driven by notable decreases from:

• transport equipment, at 2.9%, due primarily to a fall of 4.3% within motor vehicles, trailers and semi-trailers due mainly to shutdowns in October and reduced production in November 2018.
• electrical equipment, at 8.9%
• widespread weakness within basic metal and metal products, which fell by 2.1%

Partially offsetting overall manufacturing growth is a rise of 7.9% within computer, electronic and optical products, continuing the recent strength within this sub-sector.

The fall in the three months on three months a year ago growth for manufacturing output displays decreased output for the first time since May 2016 when it fell by 0.1%. However, it is helpful to understand the longer-term trend, which shows that since growth peaked in November 2017 at 3.9%, output has slowed, effectively supporting a similar decline in total production output (Figure 4).

This is underpinned by a steady decline in total manufacturing export growth for three months on the same three months a year ago. Consecutive falls during September, October and November 2018, resulted in export growth falling behind domestic growth, which has remained relatively stagnant in comparison. Total turnover and exports are reported in the monthly business survey, at current prices and are not seasonally adjusted (Figure 5).

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 (11 January 2019).

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).

On 11 October 2018, we published an article on the future use of VAT as part of the economic review, which considers the strategic collection model for administrative and survey data for short-term indicators, including the Index of Production.

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 (MBS) 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
• 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.