Industrial production had a poor May, falling a steeper than anticipated 0.6 percent versus April when it declined a smaller revised 0.2 percent. Output has contracted in four of the last five months and at minus 2.3 percent, annual growth has still not been positive since September 2021. Production was 0.2 percent below its pre-Covid level in February 2020.

Manufacturing was similarly soft, although a 0.2 percent monthly drop was shallower than forecast. Some eight of its 13 subsectors made negative contributions, notably wood and paper products and printing and other manufacturing and repair where output fell 3.0 percent and 1.7 percent respectively. However, computer, electronic and optical products (4.8 percent) provided a tidy boost.

Elsewhere, total industrial production was lifted by a 0.3 percent gain in mining and quarrying but knocked by a 1.7 percent slide in water supply and sewerage and a 2.0 percent fall in electricity, gas, steam and air conditioning.

Today's update leaves total average industrial production so far this quarter only unchanged from its first quarter mean. However, the May data were probably dented by the additional bank holiday for the Coronation of King Charles III on 8 May so the underlying picture may be marginally better. Even so, it is clear that the sector is struggling. More generally, today's update puts the UK's ECDI and ECDI-P at 18, indicating that overall economic activity is running slightly ahead of market expectations.

Manufacturing output is seen falling a further 0.5 percent on the month in May with overall industrial production down a marginally smaller 0.4 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.