Industrial production rose 0.2 percent on the month in May, marginally less than the market consensus and only partially reversing April's unrevised 0.9 percent fall. Still, this was its third advance in the last three months and, with base effects positive, enough to lift annual growth from minus 0.7 percent to 0.4 percent, a 3-month high.

Manufacturing performed rather better with a 0.4 percent monthly increase although this too only dented April's steeper revised 1.6 percent decline. Output was up in seven of the 13 subsectors with food, drink and tobacco (1.7 percent) posting the sharpest gain. The main area of weakness was transport which saw a 0.7 percent drop as motor vehicles, trailers and semi-trailers declined 1.8 percent.

Elsewhere, overall production was boosted by stronger mining and quarrying (0.1 percent) and water supply (0.4 percent) but hit by weaker electricity and gas (minus 1.9 percent)

The May report leaves average industrial production in the first two months of the quarter 0.4 percent below its first quarter mean. Absent revisions, June will need at least a 1.1 percent monthly increase just to keep the period flat. As such, the sector looks likely to have a small negative impact on second quarter GDP growth. Even so, today's updates put the UK RPI at 6 and the RPI-P at 11, both measures showing just a very modest degree of overall economic outperformance.

Both manufacturing output and overall industrial production are expected to rise 0.3 percent on the month following falls of 1.4 percent and 0.9 percent respectively in April.

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.