Monthly production output fell by 0.6 percent in October, to its lowest point since May 2020 and far below the consensus estimate. A significant 3.1 percent contraction in mining and quarrying and a 0.6 percent reduction in manufacturing drove October's downturn. However, these losses were partially mitigated by growth in electricity and gas up 1.4 percent and water supply and sewerage up 0.5 percent.

Manufacturing, while stabilising year-over-year in October (0.0 percent change), saw decreases in 7 of its 13 subsectors during October, with basic pharmaceutical products experiencing the steepest decline at 2.6 percent. Over the same three months, production output contracted by 0.3 percent, marking a sixth consecutive quarterly decline, driven by downturns in mining and quarrying (down 2.0 percent) and electricity and gas (down 1.2 percent).

These figures underscore the fragility of the production sector, exacerbated by sustained weaknesses in mining and energy. While some resilience in utilities provides a buffer, consistent recovery will depend on reversing declines in key industries and addressing structural vulnerabilities in the broader production landscape. The latest update takes the RPI to 2 and the RPI-P to minus 17. This means that economic activities in general are slightly behind market expectations.

Forecasters see industrial production rebounding by 0.3 percent on the month in November after falling 0.5 percent in October. Output is seen up 0.2 percent on the year after dropping 1.8 percent in October.

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.