Industrial production fell surprisingly sharply in April. A 0.9 percent monthly decline was nowhere near the market consensus and the steepest since last October. Annual growth slumped from 0.4 percent to minus 0.4 percent and production now stands at a 3-month low.

Manufacturing fared worse, posting a 1.4 percent drop versus March when it rose an unrevised 0.3 percent. Yearly growth was 0.4 percent, well down from 2.3 percent. On the month, nine of the 13 subsectors recorded losses with pharmaceutical products and pharmaceutical preparations (minus 6.1 percent) especially weak. On the upside, the most pronounced gain was in the other manufacturing subsector (1.2 percent).

Elsewhere, overall production was boosted by stronger mining and quarrying (0.8 percent), electricity and gas (0.5 percent) and water supply (1.3 percent).

The April update leave total industrial production 0.4 percent below its first quarter average output. However, the 3-monthly change (0.7 percent) remains positive and indicative of improving conditions in the sector. In manufacturing, the quarterly change (1.0 percent) tells much the same story. Even so, demand is still soft and the recovery uneven. More generally, today's updates put the UK RPI at minus 6 and the RPI-P at minus 7, both measures showing just a very modest degree of overall economic underperformance.

Industrial production is expected to fall 0.1 percent in April after rising 0.2 percent in March and 1.0 percent in February, both of which were a good deal better than expected. Manufacturing output, which in March rose 0.3 percent, is expected to fall back by 0.3 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.