Worst UK Manufacturing PMI Since 2013 Hits Pound Sterling (GBP) Forecast

August 2, 2016 - Written by Toni Johnson

STORY LINK Worst UK Manufacturing PMI Since 2013 Hits Pound Sterling (GBP) Forecast

Brexit Decision Impacts UK Economy and Weighs on Pound Sterling (GBP) Rates

The evidence is mounting that the UK economy has been hard hit by June’s decision by the British electorate to vote to leave the European Union. The latest Purchasing Manager Index survey, published by Markit / CIPS yesterday morning, revealed that the contraction in activity in the UK’s manufacturing sector during July was deeper than had previously been believed.

A Flash version of the same survey, published last month, printed at 49.1, providing an early indication that the pace of manufacturing output was shrinking, but yesterday’s result of a lowly 48.2 showed that this contraction was sharper than had been previously estimated.

UK Manufacturing Slump Forecast to Keep British Pound Conversion Rates Pressured

Markit, who were partly responsible for the release, explained in their accompanying blurb that,

‘at 48.2 in July, down from 52.4 in June, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index (PMI) fell to its lowest level since February 2013. The reading was also below the earlier flash estimate of 49.1. This is only the second time since early-2013 that the PMI has fell to a sub-50.0 level.’

Their analysis went on to assert that,

‘the decline in production was the steepest since October 2012, with contractions across the consumer, intermediate and investment goods sectors. The intermediate goods sector saw the sharpest drops in both output and new orders.’

The one mildly encouraging note from Markit was the observation that, ‘the impact of increased business uncertainty on the domestic market offset an exchange rate supported increase in new export business.’ However, most analysts feel that the recent weakening of the Pound will not be enough to spare the UK economy from a painful recession.

Negative Medium Term Forecast for Pound to Euro, US Dollar Exchange Rates Amid Article 50 Speculation

Elsewhere, a Member of the UK’s House of Lords ramped up the uncertainty enveloping the Pound Sterling yesterday by suggesting that the British Parliament’s Upper House might vote to delay the triggering of Article 50 of the Treaty of Lisbon – an action required in order for Brexit to take place. Baroness Wheatcroft stated in a newspaper interview that she hoped that while the Lords,

‘delayed things, that there would be sufficient movement in the EU to justify putting it to the electorate, either through a general election or a second referendum.’

The lack of clarity surrounding Britain’s place in the EU is forecast to further weigh down Sterling into the medium term.

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