Index of production, December 2013
This bulletin presents the Index of Production (IoP) for the United Kingdom production industries, December 2013. Users are reminded that all figures contained within this release are seasonally adjusted estimates, unless otherwise stated. The reference year for these estimates is 2010=100 and they are mainly based on a monthly business survey (MBS) of approximately 6,000 businesses, covering all the territory of the UK without geographical breakdown. The IoP is one of the earliest indicators of growth and it measures gross value added in the manufacturing (the largest component of production), mining and quarrying, energy supply and water supply and waste management sectors. The total IoP estimate and various breakdowns are widely used in private and public sector institutions. Care should be taken when using the month on month growth rates due to their volatility
Economic Context:
The pace of growth in manufacturing exceeded that of total production between 2003 and 2007. This trend, however, was temporarily interrupted following the economic downturn in 2008, where manufacturing fell by a greater extent than total production. Since the second half of 2010, growth in manufacturing has returned to its pre-downturn trend of outpacing growth in total production. Comparing Q4 2013 with Q4 2012, manufacturing output rose by 1.9% and total production output increased by 2.3%.
The recent divergence can be attributed to movements within the sub-industry groupings that make up total production, namely the mining and quarrying industries. The decline of oil & gas extraction over the past 13 years has provided downward pressure on production, this can predominantly be attributed to North Sea oil and gas reserves becoming increasingly challenging to extract and ageing extraction equipment requiring extensive repairs and maintenance.
More recently, the preliminary estimate of Q4 2013 GDP indicated that the UK economy grew by 0.7%. Three out of the four of the main industrial groupings experienced growth in output, with the construction industry contracting. The services industries continued to be the main contributor to growth, with output in the latest quarter rising above the pre-downturn peak reached in Q1 2008 by 1.3%. By contrast, output in both the production and construction industries remained more than 10% below their respective pre-downturn peaks.
Broader economic conditions remain difficult in the UK, however, they do appear to be improving. The rate of UK Consumer Price Inflation (CPI) continues to exceed growth in total average weekly earnings, therefore placing downward pressure on real wages. However, the rate of inflation fell further in December to 2.0% due to notable downward contributions from food & non-alcoholic beverages and recreational goods & services prices. This marks the first time CPI has met its Bank of England target since April 2006.
The rate of Producer Price Inflation (PPI) of goods produced by UK manufacturers – or factory gate prices – rose by 1.0% in the year to December. Input prices for all manufactured goods fell by 1.2% over the same period.
Economic conditions in the euro area (EA18) remain complex. The latest EA18 quarterly GDP figures estimated that output grew by 0.1% in Q3 2013, a second successive quarterly expansion. However, this follows a period of six consecutive quarterly contractions up until Q1 2013. The rate of consumer price inflation fell to 0.7% in the 12 months to January 2014, while the unemployment rate remained stable at 12.0% in December, though the performance varies by country.
Economic conditions in the US strengthened further, with GDP growing by 0.8% in Q4 2013 compared with Q3 2013. The US labour market also improved, with the unemployment rate falling 0.3 percentage points between November and December 2013 to 6.7%.
On a global level, production output amongst the G7 nations appears to have been growing steadily since 2011, expanding by a further 0.6% in Q3 2013 compared to Q2 2013. This experience however varies by country, with production output in the UK, France and Italy still remaining below levels reached in Q1 2011.
