Post Brexit Gains Turn To Losses As Manufacturing Nosedives

Market Trends - 07/12/2016

Although the decision to exit from the European Union has been greeted with broad pessimism, the UK economy managed to deftly avoid much of the fallout as a weaker Pound helped stimulate the economy.  However, those gains from the Pound were very transitional and unable to overcome external factors that are now weighing on the manufacturing sector.  In its latest report, the Office for National Statistics reported a -0.90% contraction in manufacturing activity during the month of October.  The figures mark the deepest fall in eight months and indicate a serious u-turn from the progress made during August and September.  Complementing the losses in manufacturing was worsening industrial production with slumped -1.30% during the same period.  The main culprits behind the precipitous drops in both figures were pharmaceuticals along with oil and gas output.  On annualized basis, both figures are trending in negative territory as the temporary boost from the Pound depreciation gradually subsides.

The latest manufacturing and industrial contrasts starkly with the most recent employment and gross domestic product data, especially with UK growth reaching a 1-year high on an annualized basis.  With inflation no longer on the cusp of deflation and the unemployment rate falling to an 11-year low of 4.80%, there are a multitude of bright spots in the economy.  However, as the uncertainty surrounding the Brexit negotiations reaches a fever pitch, there are concerns that any exit will be more challenging than initially thought.  The UK Supreme High Court is currently hearing the third day of arguments brought by the government after handing down a judgment the other month could complicate efforts for the May administration to trigger Article 50 in order to leave the European Union.  As a result, the Pound is back under pressure, with GBPUSD retreating from the upper channel line of a bullish equidistant channel pattern over the last two sessions as Brexit concerns loom large.

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