Pound Tumbles as Manufacturing PMI Falls Short

Market Trends - 01/08/2016

While contraction was anticipated in the UK manufacturing sector in light of the Brexit decision, the results came in far worse than initially forecast. The UK’s manufacturing PMI hit its worst level since the beginning of 2013 during July, echoing concerns about the spreading impact of the “leave decision.” This is very concerning news for the health of the sector post-Brexit as it was the first full month of data since the referendum votes were cast on June 23nd. According to the latest data, the UK manufacturing PMI fell to a seasonally adjusted 48.2, well below the 49.1 that was released during the preliminary report on June 22nd. This represents a steep drop off from before the Brexit decision, considering the index was reading 52.1 as recently as June. With the reading coming in below the 50.0 threshold, the evidence of an ongoing contraction in the sector is multiplying.

Since the announcement, the Pound has faltered against all the major currency peers. GBPUSD was at 1.3240 before the data was released, falling to 1.3186 within the hour as anxiety about the outlook spread. This poor data comes at a crucial time, with the Bank of England’s Monetary Policy Committee set to release its interest rate decision and its quarterly inflation report on Thursday at 12:00 GMT. Expectations are currently for a 25 basis point cut to the key rate, bringing the benchmark down to 0.25% from 0.50% where it currently stands.


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