GB: Industrial Production

Thu May 10 03:30:00 CDT 2018

Consensus Actual Previous Revised
IP-M/M 0.1% 0.1% 0.1%
IP-Y/Y 3.0% 2.9% 2.2% 2.1%
Mfg Output-M/M -0.2% -0.1% -0.2%
Mfg Output-Y/Y 2.9% 2.9% 2.5%

For the second month in a row, goods production did little more than stagnate in March. A minimal 0.1 percent monthly gain matched the unrevised February outturn as well as market expectations but, with base effects positive, annual growth still climbed 0.8 percentage points to 2.9 percent.

Significantly, manufacturing again failed to keep up and recorded a 0.1 percent monthly dip, its second fall in a row. Pharmaceuticals (minus 5.2 percent) alone subtracted nearly 0.3 percentage points from the monthly change while transport equipment (minus 1.9 percent) and metals (minus 1.1 percent) hit growth by a further 0.3 percentage points. The main offset was other manufacturing and repair (4.2 percent) which added 0.3 percentage points.

Elsewhere within overall industrial production, electricity and gas advanced 2.6 percent and water supply 0.4 percent but mining and quarrying declined 2.4 percent.

The March data make for a superficially respectable 0.6 percent quarterly rise in goods production at the start of the year. However, with much of the increase due to the more volatile subsectors (notably energy, 2.5 percent) manufacturing over the same period rose just 0.2 percent, down from 1.3 percent in the fourth quarter of 2017. The underlying slowdown is one reason for expecting no change in BoE interest rates later this morning.

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.