Industrial production held up a good deal better than expected in March. A 0.2 percent monthly rise was well above the market consensus although following a marginally smaller 1.0 percent increase in February, not enough to prevent annual growth halving to 0.5 percent on negative base effects.

Manufacturing fared slightly better, posting a 0.3 percent advance versus February when it rose an unrevised 1.2 percent. Yearly growth was 2.3 percent, down from 2.6 percent. On the month, five of the 13 subsectors recorded gains with pharmaceutical products and pharmaceutical preparations (7.6 percent) especially buoyant. On the downside, the steepest fall was in transport equipment (2.8 percent).

Elsewhere, overall production was boosted by stronger mining and quarrying (1.0 percent) but undermined by falls in electricity and gas (0.9 percent) and water supply (0.1 percent).

The March update puts first quarter industrial production up 0.8 percent versus the fourth quarter of last year (manufacturing output up 1.4 percent). This confirms a positive contribution to GDP growth and also makes for the best 3-monthly performance since last August. More generally, today's updates raise the UK RPI to a solid 41 and the RPI-P to an even higher 52. Economic activity is clearly now exceeding expectations by some margin.

Following a surprisingly robust February, both manufacturing output and industrial production are expected to fall 0.5 percent on the month in March.

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.