GB: Industrial Production

Wed Apr 11 03:30:00 CDT 2018

Consensus Actual Previous Revised
IP-M/M 0.4% 0.1% 1.3%
IP-Y/Y 2.9% 2.2% 1.6% 1.2%
Mfg Output-M/M 0.2% -0.2% 0.1%
Mfg Output-Y/Y 3.3% 2.5% 2.7% 2.2%

Goods production made surprisingly limited progress in February. In fact, a minimal 0.1 percent monthly increase was comfortably short of market expectations although strongly positive base effects still saw annual growth climb from a downwardly revised 1.2 percent to 2.2 percent.

There was worse news for the key manufacturing sector where expectations for a tenth straight rise in output proved overly optimistic. Rather, a 0.2 percent monthly fall constituted the sector's worst performance since last March. A sharp decline in machinery and equipment (3.9 percent) did most of the damage but there were sizeable decreases too in electrical equipment (3.8 percent), textiles and leather (1.9 percent) and wood, paper and printing (1.8 percent). Partial offsets were provided by metal products (1.7 percent) and pharmaceuticals (3.3 percent).

Elsewhere, total industrial production was bolstered by a 3.7 percent monthly advance in electricity and gas and a 0.7 percent rise in water supply but dented by a 2.7 percent fall in mining and quarrying.

The latest data put 3-monthly growth of industrial production at minus 0.1 percent. However, manufacturing (0.6 percent) remains in positive territory. There was no evidence that widespread snow had any significant impact although the likelihood is that there was at least some small effect. Nonetheless, manufacturing activity looks to be slowing and this will add to creeping doubts about another hike in Bank Rate at next month's BoE MPC meeting.

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.