Industrial production was surprisingly firm at year-end. A 0.6 percent monthly rise compared with market expectations for a small drop and followed an upwardly revised 0.5 percent gain in November. This made for the first back-to-back increase since March/April last year. Annual growth climbed from 0.1 percent to 0.6 percent and output now stands at a 3-month high.

Manufacturing fared even better, posting a second successive 0.8 percent monthly gain to boost its yearly growth from 1.9 percent to 2.3 percent, also a 3-month peak. Some nine of its 13 subsectors saw output expand with transport equipment (2.3 percent) and pharmaceuticals products (3.0 percent) especially strong.

Elsewhere, overall production was boosted by a 1.1 percent increase in electricity and gas but dented by falls in both total water supply (0.4 percent) and oil and gas extraction (1.9 percent).

Despite December's unexpected buoyancy, fourth quarter goods production still fell 1.0 percent versus the previous period with manufacturing down a slightly smaller 0.9 percent. However, with respective growth rates of 0.1 percent and 0.2 percent in the third quarter, neither the overall industry nor manufacturing is in technical recession. Even so, the near-term outlook remains problematic at best with demand at home and abroad still soft. Today's updates put the UK RPI at minus 8 and the RPI-P at 12. Neither measure is especially far away from zero, but the bottom line is that the UK real economy is slightly outperforming market expectations while inflation news has been on the soft side.

Production in December is expected to fall a monthly 0.1 percent after rising an as-expected 0.3 percent in November. Absent revisions, December would need an improbably steep 3.8 percent monthly spurt just to keep the quarter flat. Yearly growth is put at minus 0.3 percent, down from minus 0.1 percent last time.

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.