Index of Services, UK: September 2018

• Services output increased by 0.4% in Quarter 3 (July to Sept) 2018 compared with Quarter 2 (Apr to June) 2018; following growth of 0.6% between Quarter 1 (Jan to Mar) 2018 and Quarter 2 2018.

• The information and communication sector made the largest contribution to the quarter-on-quarter growth, contributing 0.16 percentage points.

• The Index of Services fell by 0.1% between August 2018 and September 2018.

• The motor trade industry was behind this month-on-month decrease, contributing negative 0.14 percentage points.

• In the three months to September 2018, services output increased by 1.7% compared with the three months ending September 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 (9 November 2018) is the GDP first quarterly estimate, UK: July to September 2018.

This September 2018 release publishes updated and revised estimates from July 2018 onwards, and is consistent with the National Accounts Revisions Policy.

On the 11 October 2018, we published an article on the future use of Value Added Tax (VAT) as part of the economic review, which considered 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.

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.

During Quarter 3 (July to Sept) 2018, services output increased by 0.4%, following growth of 0.6% in Quarter 2 (Apr to June) 2018.

Figure 1 shows the quarter-on-quarter Index of Services (IoS) and the information and communication seasonally adjusted index from Quarter 1 (Jan to Mar) 2015 to Quarter 3 2018.

The information and communication sector was the largest contributor to growth in Quarter 3 2018. It increased by 1.9% and contributed 0.16 percentage points.

Growth in this sector has outperformed total Index of Services (IoS) for much of the period since Quarter 1 2015. The sector has only seen one decrease over this period, falling in Quarter 1 2017, and has now seen growth for six consecutive quarters.

Figure 2 shows the quarter-on-quarter contributions of the information and communication sector along with the other IoS sectors for Quarter 3 2018.

Within the information and communication sector, the computer programming industry contributed the most and was the largest contributing industry to IoS. It increased by 2.2% and contributed 0.08 percentage points. Large programming businesses were the main reason for this quarterly rise.

There was widespread quarter-on-quarter growth within this sector and in addition to computer programming, the other industries contributing to growth were:

• telecommunications, which increased by 1.4%, contributing 0.03 percentage points

• motion pictures, which increased by 2.7%, contributing 0.03 percentage points

• publishing activities, which increased by 1.8%, contributing 0.02 percentage points

Wholesale, retail and motor trade was the largest contributing sector in Quarter 2 2018 and it again contributed to the Quarter 3 2018 growth. This was driven by growth in the retail trade and wholesale trade industries. They grew by 1.1% and 1.6% respectively and both contributed 0.07 percentage points. They were partially offset within the sector by the motor trade industry, which saw a large month-on-month fall in September 2018. We intend to publish an article exploring recent developments in the motor trade and motor vehicles production industries in the next few months.

Figure 3 shows the contribution to growth of both the information and communication, and wholesale, retail and motor trade sectors for each quarter since Quarter 3 2016.

The information and communication sector has seen consistent contributions to positive Index of Services (IoS) growth since Quarter 3 2016. In comparison, the wholesale, retail and motor trade sector has contributed less in seven of the nine quarters. This sector saw its largest contribution in Quarter 2 2018 since Quarter 4 (Oct to Dec) 2016, however, in the intervening period it has contributed less to total IoS growth.

The other notable rise in Quarter 3 2018 was in the professional, scientific and technical activities sector. It increased by 0.8% and contributed 0.08 percentage points. This growth was driven predominantly by the accounting and auditing activities industry, which increased by 4.3%, contributing 0.07 percentage points. Large businesses continued to be behind the rise in this industry, which has seen growth in each consecutive quarter since Quarter 1 2017.

Services output fell by 0.1% in September 2018, following no growth to one decimal place in August 2018.

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

Movement at sector level in September 2018 was mixed, with decreases in 6 out of the 14 sectors, while there was also growth in six sectors and two sectors showed no growth.

The wholesale, retail and motor trade sector contributed the most to the monthly decrease. It fell by 1.6% and contributed negative 0.21 percentage points. The motor trade industry saw a large decrease in September 2018 and was the main reason for both the sector and total services fall. The industry decreased by 6.2% and contributed negative 0.14 percentage points. This is the lowest growth since April 2017, when changes to Vehicle Excise Duty (VED) rates impacted the industry.

Motor trade businesses reported a significant impact this month due to the worldwide harmonised light vehicle test procedure (WLTP). This was applied to all new car registrations starting from September 2018. These tests are part of new regulations that are used to measure fuel consumption and CO2 emissions from passenger cars, as well as their pollutant emissions. These changes impacted the sale of new cars component within the industry, with businesses reporting that testing affected supply, meaning they had fewer models to sell this month.

The motor trade industry still saw a rise in turnover on the month, which is traditional for September due to the new car registrations, however, the industry saw a fall in turnover this month when compared with September 2017. The Monthly Business Survey turnover in services industries dataset is published alongside this release. The impact from the introduction of the WLTP was also reported in the Society of Motor Manufacturers and Traders (SMMT) September 2018 publication, which measures the new car market.

Retail trade decreased by 0.7%, contributing negative 0.05 percentage points. A slowdown in food sales in September 2018, following a good summer was behind this fall. For more information, please see Retail sales, Great Britain: September 2018. This industry along with motor trades was responsible for the decrease in the wholesale, retail and motor trade sector.

Partially offsetting this large sector decrease was the information and communication sector, which increased by 1.2% and contributed 0.10 percentage points. Within this sector the motion pictures industry was the main reason behind the rise. It saw an increase of 9.3% and contributed 0.10 percentage points. The film distribution and television production components were the main cause of the industry rise; however, there was also widespread growth across almost all other components.

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 September 2018, services output increased by 1.7% compared with the three months ending September 2017. This 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.

The motor trade industry saw a large month-on-month fall in September 2018, due to the impact of the worldwide harmonised light vehicle test procedure (WLTP). However, this industry has also seen its three month on a year ago growth weaken since the three months to March 2016 (Figure 6).

In the three months to September 2018, the motor trade industry fell by 3.3% compared with the three months to September 2017. This is the lowest since the three months to January 2012. Since the three months to January 2015, the industry reached a three month on a year ago growth peak in March 2016. However, from this period, the growth rate has weakened and has seen negative growth since the three months to October 2017.

The Society of Motor Manufacturers and Traders (SMMT) publish statistics on the motor industry. They have reported that car output peaked in 2016 but has fallen since, though it remains at a high level. Their new car market publications have also highlighted the decline in demand for diesel-fuelled cars.

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 (9 November 2018) as part of the GDP first quarterly estimate, UK: July to September 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.

We intend to publish an article exploring recent developments in the motor trade and motor vehicles production industries in the next few months.

We welcome your feedback on this bulletin via our short survey.

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 are 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: September 2018, published on 18 October 2018.

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

This September 2018 release contains revisions from July 2018 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