Industrial production matched expectations with a 0.1 percent monthly increase in October following a smaller revised 0.1 percent dip in September. Annual growth accelerated from an upwardly revised 1.5 percent at the end of last quarter to 1.7 percent. However, manufacturing output declined a steeper than anticipated 0.4 percent versus September when it rose a marginally firmer revised 0.9 percent. Compared with a year ago output was down 0.1 percent.
Within the monthly decline in manufacturing, seven of the thirteen subsectors posted decreases. The largest drag came from other manufacturing and repair which contracted 5.4 percent on the back of a 21.5 percent nosedive in the repair and maintenance of aircraft. Partially offsetting this was a 2.7 percent advance in basic pharmaceutical products and preparations.
Elsewhere, total industrial production, mining and quarrying rose 0.9 percent on the month while electricity, gas, steam and air conditioning increased 0.7 percent and water supply, sewerage and waste management 1.7 percent.
The October data leave a 3-month rise in overall industrial production of 0.6 percent, up from 0.2 percent last time while the comparable rate for manufacturing stands at 0.4 percent, its first positive reading since April. Underlying trends are positive but recent anecdotal evidence has been mixed and it still looks as if manufacturing will make only a small contribution to GDP growth this quarter. There continues to be no pressure from goods production on the BoE MPC to raise interest rates.
Industrial production measures the physical output of the mining and quarrying, manufacturing, gas and electric, and water supply and sewerage sectors.
Industrial and manufacturing outputs are watched carefully by market participants despite the decline in the importance of manufacturing in the UK economy. Manufacturing output is the preferred number rather than industrial production which can be unduly influenced by electrical generation and weather. The manufacturing index is widely used as a short-term economic indicator in its own right by both the Bank of England and the UK government. Market analysts also focus on manufacturing and its sub-sectors to get insight on industry performance.
Industrial production accounts for less than 16 percent of the economy within which the key manufacturing sector is worth about ten percentage points. Total manufacturing is divided into thirteen sub-sectors, ranging from food, drink and tobacco through chemicals and chemical products to electronics and transport equipment. Consequently, this report has a big influence on market behavior. In any given month, one can see whether capital goods or consumer goods are growing more rapidly. Are manufacturers still producing construction supplies and other materials? This detailed report shows which sectors of the economy are growing and which are not.
Investors want to keep their finger on the pulse of the economy because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more subdued growth that won't lead to inflationary pressures. By tracking economic data such as industrial production, investors will know what the economic backdrop is for these markets and their portfolios.