Weak UK PMI Manufacturing Survey Sends GBP EUR Rate Lower

March 1, 2013 - Written by David Woodsmith

STORY LINK Weak UK PMI Manufacturing Survey Sends GBP EUR Rate Lower

Investor sentiment regarding the Pound had been firming throughout the week following the sharp move against the UK tender which last Friday’s British debt downgrade had triggered. However, this morning’s Markit/CIPS Purchasing Managers’ Index survey put an end to the Pound’s apparent stabilisation. The gauge of the state of play in the UK’s manufacturing base was expected to show that activity in this key sector of Britain’s economy had continued to expand last month at an increased pace compared to January. It therefore came as a severe shock to market participants that the sector had shrunk in February, as evidenced by a print of 47.9.

The dismal showing raised concerns that the UK’s economy may be tumbling into a triple dip recession. We already know that the last three months of 2012 saw British economic activity shrink by 0.3%. If next month’s preliminary Q1 2013 GDP data shows at 0.0% or below, then the UK will have officially re-entered a technical recession. Such an event would be likely to hit the Pound hard.

Elsewhere, as if this week has not been turbulent enough for Italy, this morning’s labour market data for the struggling Mediterranean state revealed a surprise seasonally-adjusted increase in the overall level of domestic unemployment from 11.3% to 11.7%. The figure suggests that erstwhile leader Mario Monti’s deep austerity measures have had a ravaging effect on Italy’s real economy. In the absence of any cogent leadership following last weekend’s indecisive general election, a plan to improve Italy’s current economic plight appears a long way off. The markets will be looking for some progress on this during the next week. Any absence of a solution could cause further downside for the euro which could potentially send the Pound euro exchange rate (currency : GBP EUR) back up into the 1.1600s sooner rather than later.

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