GB: Industrial Production

Fri Feb 09 03:30:00 CST 2018

Consensus Actual Previous Revised
IP-M/M -0.9% -1.3% 0.4% 0.3%
IP-Y/Y 0.3% 0.0% 2.5% 2.6%
Mfg Output-M/M 0.4% 0.3% 0.4% 0.2%
Mfg Output-Y/Y 1.2% 1.4% 3.5% 3.8%

The UK goods producing sector had a misleadingly poor end to 2017. Production declined a sharper than expected 1.3 percent on the month following a marginally smaller revised 0.3 percent increase in November but was biased down significantly by the closure of the Forties oil pipeline for much of the period. Annual growth was 0.0 percent, a 2.6 percentage point fall from last time.

More importantly, manufacturing had a much better time of it, rising a further 0.3 percent versus mid-quarter and so broadly matching the market consensus. The main areas of strength were metal products (4.2 percent), textiles and leather (1.8 percent) and computer, electronic and optical products (1.4 percent). Rubber and plastic (minus 2.5 percent) alongside chemical products (minus 1.2 percent) were the steepest fallers.

Elsewhere, the impact of the oil pipeline shutdown was reflected in a 24.2 percent monthly slump in crude petroleum and natural gas output that alone subtracted 1.6 percentage points from the monthly change in total industrial production. Otherwise, electricity and gas climbed 0.9 percent and water supply was up 0.6 percent.

December's data make for a 0.5 percent quarterly increase in overall industrial output while manufacturing was up a healthy 1.3 percent. The January CBI and PMI surveys hinted at some cooling at the start of the year but for now, the underlying trend in goods production looks respectable enough and should not dent speculation about another BoE tightening as soon as May.

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.