Industrial production fell 0.2 percent on the month in January. The drop, which was only marginally more than expected, was the first since last October and followed an unrevised 0.6 percent increase in December. Yearly growth was 0.5 percent, down from 0.6 percent.

Manufacturing fared a little better, posting no change versus December although this still reduced annual growth from 2.3 percent to 2.0 percent. Seven of the 13 subsectors posted monthly gains with transport equipment (2.3 percent) and other manufacturing and repair (1.8 percent) seeing particularly healthy advances. However, basic pharmaceutical products and pharmaceutical preparations (minus 5.1 percent) recorded a hefty decline.

Elsewhere, overall production was boosted by a 0.5 percent increase in electricity and gas but undermined by weaker total water supply (minus 2.2 percent). Oil and gas extraction (0.1 percent) was essentially flat.

January's setback leaves the 3-monthly change in overall goods production at minus 0.2 percent. However, this is its strongest reading since September 2023 and manufacturing (0.3 percent) is now expanding. Even so, today's updates trim the UK RPI to minus 13 and the RPI-P to minus 10, both measures showing overall economic activity falling a little short of forecasts.

Industrial production is expected to decrease a monthly 0.1 percent in January following December's 0.6 percent gain. Manufacturing output, which rose 0.8 percent in December, is expected to hold unchanged.

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.