Goods production was stronger than expected in December. A 0.3 percent monthly increase followed an upwardly revised 0.1 percent gain in November and was some 0.5 percentage points above the market consensus. Annual growth improved from minus 4.3 percent to minus 4.0 percent but production was still 1.4 percent below its pre-Covid level in February 2020.

Manufacturing was less robust and output here was only unchanged versus November when it declined a steeper revised 0.6 percent. Fully seven of its 13 subsectors made negative contributions notably food, drink and tobacco which fell 1.0 percent. Mainly offsetting this decline was pharmaceuticals which were up 2.0 percent.

Elsewhere, overall goods production was boosted by a 5.2 percent jump in electricity, gas, steam and air conditioning alongside a 0.7 percent increase in total water supply. Oil and gas extraction fell 5.3 percent.

Today's update leaves fourth quarter industrial production 0.2 percent below its level in the third quarter when it declined 2.6 percent. Output has decreased every quarter since the three months to September 2021. Quarterly manufacturing output was flat, avoiding negative growth for the first time since the second quarter of 2021. The current quarter is likely to see another decline in both series. Still, with the UK's ECDI at minus 1 and the ECDI-P at minus 5, in general economic activity is broadly matching market expectations and Bank Rate may well go up again next month.

Industrial production is expected down 0.2 percent on the month, reducing annual growth to minus 5.3 percent.

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.