UK Manufacturing PMI Lowest Since 2013, Pound Falls in Reaction

The latest Markit/CIPS manufacturing purchasing manger’s index (PMI) for the UK in July revealed that the index score was 48.2, significantly down from the 52.4 recorded in June, the PMI is now at the lowest point since the early part of 2013, and is more evidence on how negatively the impact of ‘Brexit’ has had on the UK economy.

The sector has began the third quarter of the year on a weakened footing, mainly due to levels of production and the income of new orders both contracting as business uncertainty increased.

Production levels declined by its steepest level since October 2012, with activity falling away across the consumer, intermediate and investment goods sectors, with then intermediate goods segment experiencing the sharpest downturn.

There was more positive news over the export market, as this increased for the second successive month, as the falling pound has helped sell UK goods overseas, export business rose moderately at intermediate and investment goods producers, and tightened for the second time in three months in the consumer goods sector.

The data could now prompt the Bank of England into a rate cut on Thursday, in a reverse of last month’s decision to hold interest rates at 0.5%, when it was widely anticipated that rates would fall by 25 basis points.

The pound has lost some of the gains made on the US dollar at the end of last week, following the United States’ disappointing GDP figures, where the worlds largest economy grew at only 1.2% for the three months to June, the GBP/USD rate is now $1.3182, down from just under $1.33 on Friday.

Euro Area Manufacturing Edges Downwards for Third Quarter

Confidence in the manufacturing sector also fell in the euro area, as Markit’s PMI for July showed that the index score had dropped to 52, down from 52.8 in June, although the PMI survey has revealed an expansion over the past 37 consecutive months, scoring over the neutral 50 in the index.

A lack of new order growth was the main reason for the month on month fall in the index, as incoming business grew at a weaker pace for July.

Germany recorded the fastest expansions, scoring 53.8 on the index, however this still was a two month low on the index for the most powerful economy in Europe, Austria had the second fastest expansion, but also recorded a two month low index score of 53.4, closely followed by the Netherlands on 53.2.

Italy and Spain suffered in July, where the former witnessed the largest fall they had seen in 18 months with a score of 51.2, whereas Spain saw its manufacturing sector deteriorate to 31 month nadir, with an index reading of 51.

Reductions in manufacturing business were experienced by Greece who fell to 48.7 in the PMI, and France whose index score fell to a four month low of 48.6.

In a similar vein to the UK pound, the export market in the euro area improved due to the weak exchange rate of the euro, although growth was at a slower pace, the downside of a weaker currency was that there was an increase in import costs, alongside higher oil prices.

The euro has continued its recent progress on the US dollar over the course of last week, and EUR/USD has now climbed to $1.116 this morning CET.