GB: Industrial Production

Wed Jan 10 03:30:00 CST 2018

Consensus Actual Previous Revised
IP-M/M 0.4% 0.4% 0.0% 0.2%
IP-Y/Y 1.8% 2.5% 3.6% 4.3%
Mfg Output-M/M 0.3% 0.4% 0.1% 0.3%
Mfg Output-Y/Y 2.8% 3.5% 3.9% 4.7%

Industrial production rose again in November. A 0.4 percent monthly increase was in line with expectations and followed October's upwardly revised 0.2 percent gain. However, an unusually strong surge in November 2016 still saw annual output growth slow from 4.3 percent to 2.5 percent.

The key manufacturing sector followed suit, also posting a 0.4 percent monthly increase after a stronger revised 0.3 percent advance last time. This was its seventh straight gain but, similarly reflecting negative base effects, yearly output growth dropped from 4.7 percent to 3.5 percent. The latest monthly rise reflected strength in a number of categories, notably chemicals (1.6 percent) and rubber and plastics (also 1.6 percent) together with textiles and leather (1.5 percent) and other manufacturing and repair (2.8 percent). Gains here were partially offset by falls in transport equipment (a rather ominous 3.4 percent), coke and petroleum (2.2 percent) and electrical equipment (0.9 percent).

The November data put total industrial production in the latest three months a healthy 1.2 percent above its level in June-August (manufacturing 1.4 percent). According to the CBI and PMI surveys, December was also a decent month for the sector but even flat output would generate a 1.0 percent quarterly gain. This suggests that fourth quarter GDP growth could well match the 0.4 percent quarterly rate recorded in the third quarter. If so, the economy would have outperformed the BoE's expectations which were for a modest deceleration.

Industrial production measures the physical output of the mining and quarrying, manufacturing, gas and electric, and water supply and sewerage sectors. Manufacturing is seen as the best guide to underlying developments as the other subsectors can be highly volatile on a short-term basis. Estimates are largely based on a monthly business survey of roughly 6,000 companies.

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.