GB: Industrial Production

Fri Mar 09 03:30:00 CST 2018

Consensus Actual Previous
IP-M/M 1.5% 1.3% -1.3%
IP-Y/Y 2.4% 1.6% 0.0%
Mfg Output-M/M 0.2% 0.1% 0.3%
Mfg Output-Y/Y 2.8% 2.7% 1.4%

Following its slump in December, caused by the temporary closure of a N. Sea oil pipeline, industrial production rebounded with a slightly smaller than expected 1.3 percent monthly rise in January. However, this still fully reversed December's unrevised 1.3 percent decline and lifted annual growth from 0.0 percent to 1.6 percent.

Having largely ignored the disruptions to oil supplies, manufacturing output, which rose a monthly 0.3 in December, advanced a further, but only meagre, 0.1 percent. Nonetheless, this was its ninth consecutive increase and added 0.7 percentage points to yearly growth which now stands at 2.7 percent. The monthly rise was mainly due to strength in machinery and equipment (3.2 percent), transport equipment (1.9 percent) and rubber and plastics (1.9 percent). However, buoyancy here was almost offset by sizeable falls in electrical equipment (3.5 percent), metal products (2.8 percent) and textiles and leather (2.1 percent).

Elsewhere total industrial production was boosted by a 23.5 percent leap in mining and quarrying, reflecting the end of the emergency N. Sea maintenance work, but dented by decreases in electricity and gas (3.4 percent) and water supply (0.4 percent).

The January data put 3-monthly growth of total industrial production at 0.2 percent and of manufacturing output at a healthy 0.9 percent. Underlying trends have cooled a little in recent months but by and large the sector seems to be performing moderately well and certainly strongly enough not to stand in the way of another near-term BoE interest hike.

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.