UK Manufacturing PMI falls – 3rd May 2016

Sterling retreated from four-month highs against the dollar early this morning after data showing that U.K. manufacturing activity contracted for the first time in over three years in April, adding to gloom over the outlook for second quarter growth.

GBP/USD was last at 1.4712, still up 0.26% for the day after rising as high as 1.4769 earlier, the most since January 4.

The Markit U.K. manufacturing purchasing managers’ index fell to 49.2 in April from a downwardly revised reading of 50.7 in March.

Economists had expected a more modest uptick to 51.2.

It was the first time that the index fell below the 50.0 level separating growth from contraction since March 2013, highlighting concerns over a deepening slowdown in the sector at the start of the second quarter.

The sharp slowdown in the factory sector was mainly due to headwinds from a weaker global economy and an ongoing downturn in the oil and gas industry as well as uncertainty over the European Union membership referendum on June 23.

The pound has recovered steadily since reaching long-term lows around $1.38 in late February after the announcement of a June date for the Brexit referendum on European Union membership.

It has surged in the past two weeks as bookmakers’ odds shifted back against the “Out” camp in a vote seen by financial investors as a large risk to the British and European economies.

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