Index of Services, UK: January 2016

What’s new

Coverage of Standard Business Survey Population extended

The coverage of our Standard Business Survey Population has been extended to include a population of solely PAYE based businesses as described in Improving the Coverage of the Standard Business Survey Population published on 21 December 2015. This change will make our business survey universe more representative.

This is the first IoS release to contain Monthly Business Survey data based on the extended population of solely PAYE based businesses. Across National Accounts outputs adjustments are made to account for survey under-coverage, meaning that theoretically any increase to GDP caused as a result of improved survey coverage should be offset by a reduction in the under-coverage adjustment. However, it is only possible to reassess the under-coverage adjustment when all surveys used in the National Accounts are based on the new register population, this is not currently the case due to the periodicity and lag of some ONS business survey sources.

In order to mitigate the effect of any potential step change in short term economic indicators as a result of the increased universe, the impact of this improvement was investigated by running turnover results both including and excluding these units at a sub-industry level. This work has shown that the impact was negligible (less than 0.01 effect on the current price index) in the majority of sub-industries. However, larger impacts were seen in 15 sub-industries (equating to 11 IoS industries). In these sub-industries a link factor was applied to remove the step effect. Therefore, the impact on the published Index of Services estimates for January 2016 and future estimates will be negligible.

The December IoS publication noted work to revise the back series as part of the Blue Book 2016 round, this work will now be taken forward at a later date, once data for the new universe has been taken on across all National Accounts survey sources and the survey under-coverage adjustment can be reassessed.

IDBR annual update

The Inter-Departmental Business Register (IDBR) is the sampling frame used by the Monthly Business Survey, which is one of the main data sources for the IoS. The IDBR is updated on a large scale annually, as a result of businesses responses to the Business Register Employment Survey (BRES). BRES collects data to update local unit information and business structures on the IDBR, for each site that they operate.

The annual update of the register coincides with every January publication of IoS, therefore included in this release and this results in a larger effect of sample rotation, reclassifications and other changes when compared with other months during the year.

Leap year adjustments

A methodological note on leap year adjustments was published on 29 February 2016, explaining how leap years might affect ONS time series and the methods used to adjust for them as part of seasonal adjustment. Economic Review March 2016 was published on 2 March 2016, providing further commentary on the economy, GDP and leap year effects.

Continuous improvement of GDP

The GDP Output Improvement Report, published on 30 September 2015, provided a detailed update of the implementation of improvements for Blue Book 2015, progress on industry reviews and wider cross-cutting improvements, a comprehensive timetable for the industry review project, and progress on experimental statistics.

To reflect these improvements along with updated weights the GDP(O) source catalogue, was updated alongside the Blue Book publication on 30 October 2015.

The industry review programme reviews the concepts, methods and data sources underpinning the short-term indicators that support the IoS bulletin. The 2 latest reviews were published on 23 March 2016 and covered the Water transport industry and the Postal and courier activities industry. Further reviews will be published later this year after publication of the GDP(O) improvement report on 30 June 2016.

Experimental statistics

The Index of Services (IoS) achieved National Statistic status in 2007; this was due, at least in part, to a series of industry reviews which underpinned short-term estimates. However, a number of low-level industries remained experimental statistics when the programme of industry reviews paused in 2008 to focus on the transition to SIC2007, improved deflator methodology, and the implementation of a new IT platform.

In 2011, IoS moved to SIC2007 and a reappraisal of the experimental industries was made using detailed comments from methodologists who quality assured the progress of IoS towards the National Statistics label. This IOS industry review process was published in August 2012 and outlined the 17 industries which remained experimental. A review of the 17 industries has taken place by experts against the Code of Practice for Official Statistics and, in noting the original comments, we are clear that the issues and requirements have been addressed where appropriate; further details can be found in the latest GDP Output Improvement Report. Agreement has been given by the Director General for Economic Statistics to officially move these Experimental Statistics to Official Statistics.

VAT project update

An article entitled "HMRC VAT project update" was published on 21 December 2015, the third in a series of articles. It outlined plans to use HMRC VAT turnover data as a pilot to replace MBS in summer 2016 for parts of the Index of Services and the Output approach to measuring GDP.

The first article titled “Feasibility study into the use of HMRC turnover data within Short-term Output Indicators and National Accounts” was published on 14 August 2015. It explored ways in which HM Revenue and Customs (HMRC) administrative data could be used to quality assure, supplement or replace the current turnover-based ONS surveys.

A second article, "Exploitation of HMRC VAT data", was published on 7 October 2015. This article explored the international context of the work, described previous attempts to use these data in short-term economic output indicators and National Accounts, and gave a high level overview of the process undertaken to arrive at micro-level data each month.

What do you think?

As a user of our statistics we would welcome your feedback on this publication. If you would like to get in touch please contact us via email: ios.enquiries@ons.gov.uk.

Special events

We maintain a list of candidate special events in the Special Events Calendar. As explained in our Special Events policy, it is not possible to separate the effects of special events from other changes in the series.

Understanding the data

Short guide to the Index of Services

The Index of Services (IoS) shows the monthly movements in the gross value added (GVA) of the service industries (2007 Standard Industrial Classification (SIC 2007) sections G to T). These industries account for around 79% of gross domestic product (GDP) in 2012. The index is estimated using the same data sources and national accounts methodology as the quarterly estimate of services industries’ gross value added within the output approach to measuring GDP (GDP (O)). These consist of the distribution, hotels and restaurant industries (SIC 2007 sections G and I), transport, storage and communications (sections H and J), business services and finance (sections K to N), and government and other services (sections O to T).

International comparison

International comparison with the IoS is difficult, as most comparable economies don’t 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 USA also produces services output estimates, but only on a quarterly basis, with a 4 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.

Short guide to national accounts

The national accounts provide an integrated description of all economic activity within the economic territory of the UK, including activity involving both domestic units (that is, individuals and institutions resident in the UK) and external units (those resident in other countries). In addition to being comprehensive, the accounts are fully integrated and internally consistent. More information can be found in UK national accounts: a short guide.

How our statistics explain the economy

The IoS is mentioned in an interactive version of 14 ways ONS statistics help you understand the economy, which was released on our website on 27 June 2014, alongside Quarterly National Accounts for Quarter 1 (Jan to Mar) 2014.

Interpreting the data

Some monthly data are volatile. When looking at growth rates, the headline IoS figures focus on the percentage change between the most recent month-on-a-year earlier and the most recent 3 months-on-a-year earlier.

The monthly Index of Services statistical bulletin is usually published on the same days as the Gross Domestic Product Preliminary Estimate statistical bulletin, the Second Estimate of Gross Domestic Product statistical bulletin or the Quarterly National Accounts statistical bulletin.

The data for the IoS in this statistical bulletin are generally consistent with the Quarterly National Accounts Quarter 4 (Oct to Dec) 2015, published on 31 March 2016. However, rounding can sometimes cause differences between the 3-monthly growth rates presented in this release, compared with the quarterly growth rates presented in the Quarterly National Accounts release. Data for the retail industry are broadly comparable with the Retail Sales release, published on 19 February 2016, but as the 2 series operate under different revisions policies, there can be timing differences in the updating of the 2 series. Also, adjustments to the data within the IoS release are sometimes made at the time of the Blue Book to improve the coherence of the 3 approaches to measuring GDP. Therefore, inconsistencies between the 2 series are not unusual but tend to be small. There are also conceptual and coverage differences between retail sales and retail output which can lead to apparent inconsistencies.

Definitions and explanations

Definitions found within the main statistical bulletin are listed:

Index number

An index number is a number which indicates the change in magnitude relative to the magnitude at a specified point, the latter usually taken as 100. The Index of Services (IoS) is currently referenced to 2012 so that the average for 2012 is equal to 100. Therefore, an index value of 110 would indicate that output is 10% higher than the average for 2012.

Seasonal adjustment

The index numbers in this statistical bulletin are all seasonally adjusted. This aids interpretation by removing annually recurring fluctuations, for example, due to holidays or other regular seasonal patterns. Unadjusted data are also available.

Seasonal adjustment removes regular variation from a time series. Regular variation includes effects due to month lengths, different activity near particular events such as shopping activity before Christmas, and regular holidays such as the May bank holiday.

Some features of the calendar are not regular each year, but are predictable if we have enough data, for example, the number of certain days of the week in a month may have an effect, or the impact of the timing of Easter. As Easter changes between March and April, we can estimate its effect on time series and allocate it between March and April depending on where Easter falls. Estimates of the effect of the day of the week and Easter are used respectively to make trading day and Easter adjustments prior to seasonal adjustment.

X-13-ARIMA-SEATS is the current seasonal adjustment software used for the IoS.

Value (current price)

Economic transactions involve the production of goods and the sale of goods and services (commodities). The monetary value (or current price) of these transactions is a product of the quantity produced or sold and the unit price. In a particular period, the total (aggregate) value of all transactions taking place in the economy is simply the sum of the individual transaction values in that period. The current price is sometimes referred to as the “nominal” price.

Volume (constant price)

When it comes to comparing the difference in aggregate values between 2 time periods, the observed movement is generally a combination of changes in quantity and changes in price. In a lot of cases, the interest of users of economic data lies in understanding the degree to which economic growth is being driven by changes in quantities (that is, physical volumes of production and consumption). It is standard practice to present many economic statistics as volume series (showing changes in the level of the series that have not been affected by changes in price) and such series are referred to as “at constant prices” or “real” prices.

Deflation

The process of removing price changes from a value series and converting to a volume series is known as deflation. Where information on prices is not available, but value and volume data are, an implied deflator (or price) can be derived by dividing the first by the latter. All index numbers presented in this bulletin are volume measures and have had the effect of price changes removed unless otherwise stated.

Chained volume measures

The indices in this bulletin are presented as “chained volume” measures, meaning that successive volume estimates have been linked (or chained) together. Annual chain-linking was introduced in 2003 and is considered preferable to producing standard volume series, as chained volume measures more accurately reflect volume changes over time. More information on chain-linking can be found in The effects of annual chain-linking on the output measure of GDP (Tuke and Reed, 2001) article, and a paper on chain-linking weights in the output approach to measuring GDP can be found on the Methods and Sources page.

Compound average growth

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 to the long run average.

Gross domestic product (GDP)

The total value of production activity in the economic territory. It is the balancing item on the production account for the whole economy. Domestic product can be measured gross or net of consumption of fixed capital (or depreciation). It is presented in the accounts at market (or purchasers’) prices. A further distinction is that it can be at current prices or chained volume measures.

Methods

Index of Services methodology can be found on our website.

Composition of the data

The IoS uses a wide variety of different data, from many sources, which are produced on either an annual, quarterly or monthly basis.

Some of the indicators are derived using current price turnover deflated by a suitable price index. This includes data from the monthly business survey (MBS): an ONS short-term survey on different parts of the economy. It is one of the main data sources used in the compilation of the IoS.

More information on monthly business survey data can be found within the Quality and Methodology Information report.

Other sources use direct volume measures that don’t need to be deflated, such as Civil Aviation Authority data for air transport. Other proxies, such as employment numbers, are also used. This is the case with Public Sector Employment and Workforce Jobs data.

Where monthly data are not available (for example, when data are delivered quarterly or annually), monthly estimates are derived by forecasting data. This is done using the X-13-ARIMA-SEATS forecasting method and interpolating a monthly path using a cubic spline.

An X-13-ARIMA-SEATS forecast is also used where actual data at industry level are not available for the latest period (a lower proportion of actual data are available for the latest month). When the forecast is replaced by actual data, this may lead to revisions to the published data.

The IoS adheres to the Government Statistical Service Disclosure Control Policy. More information can be found in the Quality and Methodology Information (QMI) report.

Response rates

Approximately 42% of the IoS estimates are based on data collected via our monthly business survey (MBS). In addition, approximately 7% of the IoS estimates are collected via our retail sales inquiry (RSI). The remainder is based on data received from other ONS sources and external data sources. The MBS and RSI response rates for data included in this publication are presented for the current months and the 3 months prior in Table 4. The response rates for the previous periods are updated to reflect the current level of response, incorporating data from late returns. There are 2 response rates included; the first is a percentage of the sampled turnover returned and the other is a percentage of the amount of questionnaire forms returned.

Historical MBS response rates for the services industries as at the time of the relevant publication are also available back to 2010.

Basic quality information

Some general information on the quality of the Index of Services (IoS) can be found in the “Understanding the Index of Services” section in the main part of this statistical bulletin.

Additionally, a Quality and Methodology Information (QMI) report for the IoS was published on 11 February 2015. The report pulls together qualitative information on the 5 Eurostat criteria of quality: relevance, accuracy, timeliness and punctuality, accessibility and clarity, and comparability and coherence, and provides a summary of the methods used to compile the IoS output, describing the strengths and limitations of the estimates produced.

Further quality information, including details of the quality adjustments process for IoS, was published on 31 October 2014 and can be found on the Index of Services methods page on our website.

National accounts revisions policy

Main documentation explaining the national accounts revisions policy is available.

Revisions triangles

SIC 2007 revisions triangles are contained in a zip folder. This folder can be found within the data section of this bulletin.

Revisions to data provide one indication of the reliability of main indicators. A statistical test has been applied to the average revision to find out if it is statistically significantly different from 0. An average revision close to 0 is desirable as it suggests that revisions are not predictable in any one direction. The result of the test is that the average revision is not statistically significantly different from 0.

Table 5 presents a summary of the differences published between February 2010 and January 2015 and the estimates published 12 months later.

Accessing data

The data presented in the tables of this statistical bulletin are also available to download from the dataset section of this publication. A complete run of data is available as a time series dataset on our website.

We provide an analysis of past revisions in the IoS and other statistical bulletins; more information can be found in Revisions information in ONS First Releases.

Code of Practice for Official Statistics

National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.

The UK Statistics Authority has designated these statistics as National Statistics, in accordance with the Statistics and Registration Service Act 2007 and signifying compliance with the Code of Practice for Official Statistics.

Designation can be broadly interpreted to mean that the statistics:

• meet identified user needs
• are well explained and readily accessible
• are produced according to sound methods
• are managed impartially and objectively in the public interest

Once statistics have been designated as National Statistics it is a statutory requirement that the Code of Practice shall continue to be observed.

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