Index of Services, UK: August 2018

• In the three months to August 2018, services output increased by 0.5% compared with the three months ending May 2018.

• The wholesale, retail and motor trade sector made the largest contribution to the three-month on three-month growth for the fourth consecutive month, contributing 0.21 percentage points.

• The Index of Services was flat between July 2018 and August 2018.

• Month-on-month growth in the information and communication sector was partially offset by a fall in accommodation and food services.

• In the three months to August 2018, services output increased by 1.6% compared with the three months ending August 2017.

The monthly Index of Services (IoS) provides a timely indicator of growth in the output of the services industries. It is the largest contributor to the output approach to the measurement of gross domestic product (GDP), accounting for 79.6% of UK GDP in 2016. Also published today (10 October 2018) is the GDP monthly estimate, UK: August 2018.

This August 2018 release contains revisions from January 2017 to June 2018, which is consistent with those published in the Quarterly national accounts on 28 September 2018. This revised data now includes Value Added Tax (VAT) data for the first time in Quarter 1 (Jan to Mar) 2018. In addition, this release also contains revisions to July 2018 and is consistent with the National Accounts Revisions Policy.

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

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 services industries dataset, which was published alongside this release. Note that the MBS turnover in services industries dataset does not contain data from VAT returns, which have been included in the IoS.

This release of MBS turnover in services industries data contains a large revision in June 2018 for industry 46 (wholesale trade), due to late returns from large businesses.

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.

The IoS is an important economic indicator and one of the earliest short-term measures of economic activity. It is used in the compilation of the national accounts and widely used by private and public sector institutions, particularly by the Bank of England and Her Majesty’s Treasury to assist in informed decision- and policy-making.

The UK Index of Services has been designated by the UK Statistics Authority as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Statistics.

In the three months to August 2018, services output increased by 0.5% compared with the three months ending May 2018.

Figure 1 shows the three-month on three-month Index of Services (IoS) and the wholesale, retail and motor trade seasonally adjusted index from January 2015 to August 2018.

The services three-month on three-month growth has seen larger growths since the three months to May 2018 compared with earlier in the year. The 0.7% increase in the three months to July 2018 is the strongest services growth since the three months to December 2016.

The wholesale, retail and motor trade sector was again the largest contributor to growth in the three months to August 2018. It increased by 1.6% and contributed 0.21 percentage points. This is the fourth consecutive month where it has been the largest contributing sector.

Growth in this sector has outperformed total Index of Services (IoS) for much of the period since the three months to January 2015. The sector growth slowed from the start of 2017 to the three months to April 2018, however, it has now seen further increases from the three months to May 2018, with it seeing its largest three-month on three-month growths since the end of 2016.

Figure 2 shows the three-month on three-month contribution of the wholesale, retail and motor trade sector along with the other IoS sectors for August 2018.

Within the wholesale, retail and motor trade sector, the retail trade industry contributed the most and was the largest contributing industry to IoS. It increased by 1.7% and contributed 0.11 percentage points, with continued widespread growth in the three months to August 2018; this was primarily through food and household goods stores benefitting from the warmer weather. For more information, please see Retail sales, Great Britain: August 2018.

The wholesale industry also made a large contribution to overall growth within the sector. It increased by 2.3% and contributed 0.10 percentage points. Growth in June 2018 and July 2018 was behind the three-month on three-month rise.

The other sectors that were mainly behind the 0.5% services growth in the three months to August 2018 were:

• information and communication, which increased by 1.4%, contributing 0.12 percentage points

• transportation and storage, which increased by 1.8%, contributing 0.09 percentage points

• accommodation and food services, which increased by 1.7%, contributing 0.06 percentage points

• professional, scientific and technical activities, which increased by 0.5%, contributing 0.05 percentage points

Across these sectors, the computer programming industry, or computer programming, consultancy and related activities industry, made the largest contribution. It increased by 1.8% and contributed 0.06 percentage points. Figure 3 shows the three-month on three-month Index of Services (IoS) and the computer programming seasonally adjusted index from January 2015 to August 2018.

The computer programming industry has grown steadily since the three months to January 2015 and started outperforming total services since the three months to August 2016. This industry has an IoS weight of 31.7 parts per thousand and so this growth has contributed significantly to overall IoS. The industry has four main component parts, which are:

• computer programming

• computer consultancy

• computer facilities management

• other information technology and computer service activities

The large businesses in both the computer programming and computer consultancy components are driving the recent growth in the industry.

Services output showed no growth to one decimal place in August 2018, following a rise of 0.3% in July 2018.

Figure 4 shows the month-on-month contributions of each of the Index of Services sectors for August 2018.

Sector movement in August 2018 was mixed, with growth in 6 out of 14 sectors, while there were also decreases in six sectors and two sectors showed no growth.

Information and communication was the only notable sector rise on the month, following a fall in July 2018. It increased by 1.3% and contributed 0.11 percentage points. The industries responsible for this rise were:

• publishing activities, which increased by 7.5%, contributing 0.06 percentage points

• computer programming, which increased by 1.7%, contributing 0.06 percentage points

Growth in newspaper, book and computer game publishing were responsible for the rise in the publishing activities industry. Within the computer programming industry, both programming and consultancy components were behind the month-on-month growth.

Offsetting this growth was the accommodation and food services sector, which decreased by 1.6%, contributing negative 0.06 percentage points. The two industries that make up this sector both fell:

• accommodation decreased by 3.3%, contributing negative 0.03 percentage points

• food and beverage services decreased by 1.0%, contributing negative 0.03 percentage points

Both these industries saw fallbacks after growth in each month since May 2018.

The motor trade industry grew by 1.7% in August 2018, contributing 0.04 percentage points. The transition to the worldwide harmonised light vehicle test procedure (WLTP) started in September 2017, with new types of car the first to be tested. From September 2018 this also applied to all new car registrations. These tests are used to measure fuel consumption and CO2 emissions from passenger cars, as well as their pollutant emissions. These changes will have impacted the motor trade industry and likely resulted in higher than usual turnover figures in August 2018 for the sale of new cars component. This impact was seen in the Society of Motor Manufacturers and Traders (SMMT) August 2018 publication, which measures the new car market. SMMT have since released their September 2018 publication, which noted that the market fell, following the WLTP changes at the start of that month.

Wholesale trade was the largest negative contributing industry to the month-on-month growth, falling by 1.0% and contributing negative 0.04 percentage points. This was a fallback from a rise in July 2018 and offset the growth in the motor trades industry within the retail, wholesale and motor trade sector.

Figure 5 shows the three month on a year ago Index of Services (IoS) growth rates for each year since 2015.

In the three months to August 2018, services output increased by 1.6% compared with the three months ending August 2017. This is equal to the growth in the three months to July 2018 and is the largest growth since the three months to September 2017, which grew by 1.9%.

The three month on a year growth has strengthened in 2018 since the 1.3% growth in the three months to April 2018. However, 2018 is still weaker than the previous years, with the weakening throughout 2015 followed by a further slowdown in the latter half of 2017.

Alongside this publication we publish the Index of Production (IoP) and Construction output in Great Britain, allowing for an estimate of monthly gross domestic product (GDP), which is also published today (10 October 2018).

International comparisons

International comparison with the Index of Services (IoS) is difficult, as most comparable economies do not produce equivalent estimates. Eurostat turnover in services estimates are not comparable with the IoS, as they exclude the wholesale and retail trade; furthermore, most of the estimates are only available quarterly. The US Bureau of Economic Analysis also produces services output estimates, but only on a quarterly basis, with a four-month lag time. Japan has a direct equivalent of the IoS, but the estimates are not seasonally adjusted. The closest equivalent estimates are from Canada, which produces a monthly output estimate of GDP with a breakdown by industry (including an aggregate for services). There are also comparable quarterly estimates from Sweden and Ireland.

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The monthly Index of Services (IoS) was developed to provide a timely indicator of growth in the output of services industries, at constant prices for the UK. The IoS is an important component of monthly output (gross domestic product output approach (GDP(O)), representing about 79.6% of UK gross domestic product (GDP) as of 2016. The IoS shares the exact same industry coverage as the corresponding quarterly series within GDP(O).

These data are used to produce seasonally adjusted estimates of output at chained volume measures (removing the effect of price changes). Unless otherwise stated, all estimates included in this release are based on seasonally adjusted data.

The IoS is compiled using data from several different sources (Table 1), this is detailed further in the GDP(O) source catalogue. In addition, we include Value Added Tax (VAT) data across 42 services industries for small- and medium-sized businesses. These have been used to supplement data from the Monthly Business Survey (MBS) for the period January 2016 to March 2018. Further information on the use of VAT data was published in the VAT turnover data in National Accounts: background and methodology update.

The GDP(O) methods and sources pages provide more information on the data that underpin these statistics; of particular note is the GDP(O) source catalogue.

Notes:

1. The Monthly Business Survey (MBS) data is published alongside this release in MBS Turnover in services industries.

2. Data relating to the retail industry are broadly comparable with Retail sales, Great Britain: August 2018, published on 20 September 2018.

3. For further information on what’s included within Other, please see GDP(O) source catalogue.

This August 2018 release contains revisions from January 2017 and is consistent with the National Accounts Revisions Policy. Revisions 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

Published alongside this release, the Index of Services datasets contain additional material, including:

• MBS response rates (current and historic)

• IoS and main component and sector indices to four decimal places

• publication tables

• revisions triangles

• lower-level time series data

• MBS turnover of services industries

The Index of Services 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