Index of Services, UK: September 2019

• Services output increased by 0.4% in Quarter 3 (July to Sept) 2019 compared with Quarter 2 (Apr to June) 2019.

• The information and communication sector made the largest contribution to this growth, contributing 0.08 percentage points.

• The Index of Services (IoS) was flat between August 2019 and September 2019.

• Month-on-month growth of 1.3% in the information and communication sector was offset by 8 of the 14 sectors decreasing.

• In the three months to September 2019, services output increased by 1.4% compared with the three months ending September 2018; public sector dominated industries accounted for one-third of this growth.

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 in the measurement of gross domestic product (GDP), accounting for 79.6% of UK GDP in 2016. Also published on 11 November 2019 is the GDP first quarterly estimate, UK: July to September 2019.

This September 2019 release publishes updated and revised estimates from July 2019 onwards and is consistent with the National Accounts Revisions Policy.

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

Care should be taken when using the month-on-month growth rates as data can 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 UK 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 IoS 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) 2019, services output increased by 0.4%, strengthening from growth of 0.1% in Quarter 2 (Apr to June) 2019. This is equal to the growth seen in Quarter 1 (Jan to Mar) 2019 but still lower than any quarterly growth in 2018.

Information and communication was the largest contributing sector to growth in the latest quarter. It increased by 0.8% and contributed 0.08 percentage points.

The information and communication sector has seen consistent strong growth since Quarter 1 2015 and has only seen two quarter-on-quarter falls (Quarter 1 2017 and Quarter 1 2018). The sector is also the best performing services sector over this period. Long-term strength within the computer programming and the motion pictures industries are the main reasons for the sectors strong performance from Quarter 1 2015.

Services growth in Quarter 3 2019 (0.4%) has strengthened compared with Quarter 2 2019 (0.1%), which was the lowest quarterly services growth since Quarter 2 2016 (Figure 2). The main two sectors responsible for this strengthening are professional, scientific and technical activities, and the financial and insurance sector, both seeing falls in the first two quarters of 2019. Apart from these two sectors the majority of sectors are still contributing less than they were in Quarter 1 2019, which also grew by 0.4%.

Most sectors saw growth in Quarter 3 2019, with 10 out of the 14 sectors increasing. There was a widespread rise in the information and communication sector in the latest quarter, with five out of the six industries increasing. The motion pictures industry was the largest contributor, increasing by 3.7% and contributing 0.04 percentage points. Large growth within the film and TV production components was behind this.

The professional, scientific and technical activities sector also saw a widespread increase, with six out of eight industries rising. The sector increased by 0.7% and contributed 0.07 percentage points. The industries responsible for this were:

• accounting and auditing, which increased by 2.7%, contributing 0.04 percentage points
• head offices and management consultancy, which increased by 2.4%, contributing 0.04 percentage points

After seeing negative growth since Quarter 2 2018, the financial and insurance sector has increased in the latest quarter. It grew by 0.7% and contributed 0.05 percentage points. A large proportion of data in the latest quarter across the sector are forecast. This will be replaced by actual data in the GDP quarterly national accounts, UK: July to September 2019 due to be published on 20 December 2019.

The financial service activities industry was the main driver to the sector growth; this industry saw strong growth in Quarter 2 2019, which has carried through to the forecasts.

Other notable industry rises across services were:

• retail trade, which increased by 0.7%, contributing 0.05 percentage points; for more information please see Retail sales, Great Britain: September 2019
• human health activities, which increased by 0.7%, contributing 0.04 percentage points
• rental and leasing activities, which increased by 2.7%, contributing 0.04 percentage points

Services output showed no growth to one decimal place in September 2019; this follows a fall of 0.1% in August 2019.

IoS growth has been subdued more recently, not seeing monthly growth larger than 0.3% since May 2018, and 0.4% since September 2016. Services has also seen five month-on-month estimates of no positive growth in the last 12 months.

Care should be taken when using the month-on-month growth rates as data can be volatile.

There was only one large sector rise in September 2019, which was information and communication. The sector increased by 1.3% and contributed 0.12 percentage points. It was a widespread increase within the sector with all but one of the six industries increasing.

The industries mainly responsible for the rise in the sector were:

• motion pictures, which increased by 4.8%, contributing 0.05 percentage points
• computer programming, which increased by 0.9%, contributing 0.03 percentage points

Film and TV production, film distribution, computer programmers and facilities management were behind the growth in the two industries.

Offsetting this rise were falls across eight sectors. The industries contributing most to these sector decreases were:

• motor trade, which decreased by 3.2%, contributing negative 0.07 percentage points
• rental and leasing activities, which decreased by 4.1%, contributing negative 0.06 percentage points
• sports, amusement and recreation activities, which decreased by 4.0%, contributing negative 0.03 percentage points
• architectural and engineering, which decreased by 1.7%, contributing negative 0.03 percentage points

The motor trade industry decrease continues a longer-term weakening for the industry. This has seen six month-on-month falls this year. A year ago, the industry was affected by the worldwide harmonised light vehicle test procedure (WLTP). This was applied to all new car registrations starting from September 2018 with businesses reporting that the introduction of the new testing affected supply. For more information on this please see the Index of Services, UK: November 2018.

The turnover data returned by businesses, the data source for this industry, typically sees seasonal rises in the month of September due to the new car registrations. This was a lot weaker in September 2018 due to the WLTP impact, resulting in a large fall for the industry. However, September 2019 turnover growth is similar, with no negative impact from WLTP being evident. This highlights a general weakening within the industry and resulted in a fall in 2019 as well.

In the three months to September 2019, services output increased by 1.4% compared with the three months ending September 2018 (Figure 6). This continues a weakening from the three months to December 2018 (2.6%).

We have not seen growth lower than the three months to September 2019 since the three months to January 2018, which also grew by 1.4%. Services has been more subdued recently but also saw a strong summer in 2018, which will be a factor behind the current weakening in the three-month on three-month growth a year ago.

The Services sector performance, UK: 2008 to 2018 article published on 2 April 2019 reported that the effect of the public sector dominated industries was to cushion the services sector during the recession, moderating its decline. However, as the sector came out of the recession period the growth of the public sector dominated industries was slower than the growth of the rest of the sector.

For more information on how the public sector is measured and which industries it covers, please see Section 6: Measuring public sector dominated industries.

For Figures 6 and 7, please note that data for Quarter 3 2019 are largely forecast for the public sector elements.

The public sector dominated industries have seen an increase in their contribution, accounting for around one-third of the three-month on three-month a year ago growth in September 2019 (Figure 6). This contribution in the latest periods is the largest it has been since the three months to May 2013. This has coincided with a weakening in the other services industries since the three months to November 2018.

The three-month on a year growth in the public sector dominated industries has also surpassed the other services industries since the three months to May 2019 (Figure 7). The last time that this happened was the three months to December 2012 and January 2013 and before that a period between June 2008 and June 2010.

The public sector is measured across five services industries, some of which also include a market sector component. These industries and their public sector percentage based on the industries gross value-added weight are:

• public administration and defence, and compulsory social security, 100% public sector
• education, 68.9% public sector and 31.1% market sector
• human health activities, 85.4% public sector and 14.6% market sector
• residential care activities, 51.1% public sector and 48.9% market sector
• social work activities without accommodation, 49.6% public sector and 50.4% market sector

Public sector

The main source of central government expenditure data is HM Treasury’s public spending database, OSCAR (Online System for Central Accounting and Reporting), which collects financial information from central government departments. Also detailed returns of expenditure are compiled by local government bodies and collected by the Ministry of Housing, Communities and Local Government (MHCLG), Scottish Government and Welsh Government and summary data are compiled for Northern Ireland.

This data are used for General Government Final Consumption Expenditure (GGFCE) and are therefore used in both the expenditure and output measures of gross domestic product (GDP), delivering significant coherence and consistency across national accounts.

In the latest quarter, the available expenditure data are a quarter in arrears, therefore, latest data reported are not an estimate of actual spending but rather a forecast.

Market sector

The Monthly Business Survey provides data for market activity in the education (primarily university) and health industries. For social care, GGFCE is used as a proxy for movements in the market sector.

Alongside this publication, we publish the Index of Production (IoP) and Construction output in Great Britain. This allows for an estimate of monthly gross domestic product (GDP), which is also published today (11 November 2019) as part of the GDP first quarterly estimate, UK: July to September 2019.

A comparison between official estimates of UK output and diffusion indices, looking at the level of correlation between Office for National Statistics data and IHS Markit and Chartered Institute of Procurement and Supply Purchasing Managers’ Indices was published on 21 October 2019.

On 2 April 2019, we published Services sector performance, UK: 2008 to 2018. The article details the changes that have taken place in the UK services sector from 2008 to 2018. It also looks at the differences between public sector-dominated sectors and the rest of the Index of Services (IoS) and compares the growth of individual IoS sectors in more detail.

International comparisons

International comparison with the 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 quarterly estimates from Ireland.

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) data sources catalogue. In addition, we include Value Added Tax (VAT) data across 42 Standard Industrial Classifications (SICs) 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 2019.

Further information on the use of VAT data was published in the VAT turnover data in National Accounts: background and methodology.

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

Notes

1. The Monthly Business Survey (MBS) data are published alongside this release in the MBS turnover of services industries dataset.
2. Data relating to the retail industry are broadly comparable with Retail sales, Great Britain: September 2019, published on 17 October 2019.
3. For further information on what is included within Other, please see the GDP(o) data sources catalogue.

This September 2019 release contains revisions from July 2019 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 IoS datasets contain additional material, including:

• MBS response rates (current and historical)
• 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