Goods production was a little weaker than expected in January. A 0.3 percent monthly fall fully unwound December's gain and was the first decline of any size since last August. Annual growth was minus 4.3 percent, down slightly from minus 4.0 percent and extending the unbroken run of negative prints that began in back in October 2021. Production was still 1.7 percent below its pre-Covid level in February 2020.

Manufacturing largely followed suit, posting a 0.4 percent monthly drop after a flat performance in December. Some seven of its 13 subsectors made negative contributions notably pharmaceutical products and pharmaceutical preparations where output fell fully 4.7 percent. On the positive side, chemicals and chemical products advanced 2.2 percent.

Elsewhere, overall goods production was boosted by water supply and sewerage, which rose 0.6 percent, and electricity and gas, which was up 0.5 percent, but hit by mining and quarrying, which declined 2.2 percent.

January's setback leaves industrial production still up a quarterly 0.3 percent but manufacturing output down 0.2 percent. The underlying picture remains soft. However, with the UK's ECDI and ECDI-P now at 41 and 40 respectively, economic activity in general is running a good deal hotter than expected.

Both manufacturing output and industrial production are expected to fall 0.2 percent on the month.

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.