January 2025 marked a sharp decline in production output, plunging 0.9 percent, its lowest level since May 2020. This downturn follows a brief resurgence in December 2024 (0.5 percent) but extends a longer-term trend of stagnation, with the three-month output also falling by 0.9 percent. The manufacturing sector, the backbone of industrial production, bore the brunt of this decline, contracting by 1.1 percent and dragging down nine of its thirteen subsectors. The sharpest contractions were observed in basic metals and metal products (minus 3.3 percent), other manufacturing and repair (minus 3.3 percent), and basic pharmaceuticals (minus 3.1 percent), highlighting structural weaknesses across key industries.

Meanwhile, the mining and quarrying sector fell 3.3 percent, further compounding the economic strain. In contrast, water supply and sewerage (2.6 percent) and electricity and gas (0.5 percent) offered some resilience, though not enough to counterbalance the downturn. The persistent three-monthly decline, now in its ninth consecutive period, signals deeper industrial malaise. If these contractions persist, broader economic repercussions, including job losses and declining investor confidence, could intensify in the coming months. The latest update leaves the UK RPI at 39 and the RPI-P at 29, meaning that economic activities remain well ahead of expectations in the UK.

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.