UK PMI Manufacturing boosts the pound!

  • Posted by Shyam Gokani in Uncategorised
  • September 1, 2016
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The Markit/CIPS Purchasing Managers’ Index (PMI) – a closely watched gauge of factory activity – jumped to a 10-month high of 53.3 in August after tumbling to a three-year low in July after the referendum, which was revised down to 48.3 from 48.2.

The five-point monthly surge was the joint-largest in the manufacturing survey’s near 25-year history and far outstripped all forecasts by economists.

Data over the past couple of weeks have shown consumer demand held up in the face of the referendum result and yesterday’s survey suggests manufacturing, which accounts for 10 percent of Britain’s economy, is weathering the initial impact of the vote better than feared.

Sterling soared more than a cent against the dollar and British government bond prices fell to a one-month low after the data.

After Britons unexpectedly voted to leave the EU sterling fell by more than 10 percent against the dollar and the euro, losses that have not been recouped as markets bet on a long-term hit to British economic performance and that the Bank of England will lower interest rates again later this year.

Economists will be keen to see if the rebound in manufacturing PMI is also reflected in figures due to be published on Monday for the far larger, more domestically focused services sector.

August’s manufacturing PMI showed export orders flowed in at their fastest rate since June 2014, though overall order growth was below June’s rapid pace. Factories reported that they increased output by the highest amount since January.

In the longer run, Britain’s access to European export markets remains uncertain. Prime Minister Theresa May’s new government has not said when it will start formal talks to leave the EU and has given no detail on whether it would allow unlimited EU migration in return for continued easy trade access – a likely demand of other countries in the bloc.

The BoE expects higher inflation and lower living standards to be one of the main costs for households from the vote to leave the EU, outweighing gains to trade from a weaker currency.

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