Industrial production had a surprisingly good June, climbing fully 1.8 percent on the month and easily beating the market consensus. In fact, this was its best outturn since August 2020. The increase more than reversed May's unrevised 0.6 percent decline and was the first gain of any size since March. Annual growth was 0.7 percent, up from minus 2.1 percent, and the first positive print since September 2021. Production was also 1.7 percent above its pre-Covid level in February 2020.

Manufacturing performed even better with a 2.4 percent monthly spike that followed a 0.1 percent dip in mid-quarter. Some 11 of its 13 subsectors made positive contributions, notably basic pharmaceutical products and manufacture of transport equipment which added 0.48 and 0.45 percentage points respectively.

Elsewhere, total industrial production was lifted by a 2.0 percent advance in water supply and sewerage but dented by a fall in oil and gas extraction (3.1 percent). Electricity, gas, steam and air conditioning showed no change.

Monthly production data are volatile and today's update bears little resemblance to the depressed picture painted by the June manufacturing PMI survey. Still, with a respectable 0.7 percent quarterly rise, the signs are that the sector may be holding up better than generally expected. Moreover, at 39 and 46 respectively, the UK's ECDI and ECDI-P show overall economic activity also running well ahead of market forecasts.

Industrial production is expected to rise 0.2 percent on the month in June following a 0.6 percent fall in May. Manufacturing output, which fell a monthly 0.2 percent in May, is expected to rise 0.2 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.