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Pound Climbs on Dollar as UK Manufacturing PMI Reaches Ten Month High

By:
Peter Taberner
Updated: Sep 1, 2016, 11:32 UTC

The UK’s manufacturing sector enjoyed a ten month high in the latest Purchasing Manager’s Index (PMI), from the Markit and the Chartered Institute of

Pound Rises After PMI

The UK’s manufacturing sector enjoyed a ten month high in the latest Purchasing Manager’s Index (PMI), from the Markit and the Chartered Institute of Procurement and Supply, with an index score of 53.3 for August, the response from sterling was to sharply appreciate on the dollar, with the GBP/USD rate leaping to $1.326 from just under $1.315.

August witnessed an abrupt turnaround from the post Brexit slump in July, where the index score fell below the neutral 50 to a 41 month low of 48.3, impressively this was the highest month on month increase in the 25 year history of the survey, the sudden climb into more positive territory for a pivotal sector of the economy will please those who wished to leave the European Union (EU), although since the referendum the data released for the UK economy has been patchy.

The favourable sterling exchange rate is thought to have aided the recovery in the sector, aided by an increase in manufacturing output trends, which grew at their fastest pace in seven months, especially in the consumer goods sector, and solid inflows of fresh orders on the books from domestic as well as overseas trading partners.

Markets burgeoned in the USA, Europe, China, South-East Asia, the Middle- East and Norway, where sales volumes were hiked, taking advantage of the post ‘Brexit’ plummeting pound.

Subsequently, 44% of companies who were surveyed, found that their input prices has also risen, a predictable price to pay for a falling currency, overall input price inflation had risen to a five year high.

Euro Area Manufacturing Falls to Three Month Nadir

There was not so much positive news for the manufacturing industry in the euro area, which fell to a three month low, with a Markit index score of 51.7, which was also lower than June’s year to date high.

New order inflows rose by their lowest level that the currency bloc has experienced in one and a half years, while companies reported slower increases in new business from domestic and export sources.

Germany recorded the strongest rates of expansion, with an index score of 53.6, although that was a three month low, which is bound to have a negative knock on effect as Europe’s most powerful economy, they were closely followed by the Netherlands, who grew by 53.5 in the PMI, a five month high, both countries reported the only significant rise in export orders.

Contractions in growth were also found in Austria, Ireland and Greece, with Italy and France recording a negative index scores below of the 50 neutral level of 49.8 and 48.3 respectively, in Italy’s case the figure was a 20 month low in the survey.

Output growth in Italy slowed to near-stagnation, and new order inflows decreased for the first time in 19 months, while in France the survey was an extension of the current manufacturing downturn to six months, where stable production volumes was offset by the steepest drop in new orders for four months.

In a reverse of the patterns found in the UK, input prices increased for the second month running, but this followed nearly a year of price decline, although inflation remained only marginal.

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