Production output in the UK faced continued challenges in November 2024, declining by 0.4 percent, marking the third consecutive monthly fall and reaching its lowest level since May 2020. This downturn was driven by decreases across key sectors: manufacturing (minus 0.3 percent), mining and quarrying (minus 1.5 percent), and water supply and sewerage (minus 0.3 percent), partially offset by a modest increase in electricity and gas (0.2 percent).

Manufacturing, the largest contributor to the decline, saw reductions in 7 of its 13 sub-sectors. Notable contractions came from other manufacturing and repair (minus 2.1 percent), basic pharmaceutical products (minus 1.9 percent), and transport equipment (minus 0.9 percent). These trends underline persistent headwinds in the industrial landscape.

The broader picture remains concerning, with production output for the three months to November 2024 down by 0.7 percent compared to the previous quarter. This represents the seventh consecutive quarterly fall, driven largely by a 1.0 percent decline in manufacturing. Although minor gains in electricity and gas (0.5 percent) and mining and quarrying (0.3 percent) offered some relief, they were insufficient to offset the broader downturn.

With sustained declines across multiple sectors, November's data highlights significant structural challenges in production, signalling the need for targeted interventions to stabilise industrial output. The latest update takes the RPI to minus 26 and the RPI-P to minus 31, meaning that economic activities are generally lagging behind market expectations.

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.