UK manufacturing growth hit its lowest mark for 25 months in August, with new export orders falling for the first time in more than two years. The reading had been expected to come in at 53.8, which was the same as in July, but it actually came in at 52.8. It is the weakest pace of expansion since July 2016 and the pace of job creation eased to near-stagnation. In addition, business optimism dipped to a 22-month low.
The reading alarmed the markets and the pound slumped against the euro and dollar once more. Sterling had already come under pressure when trading began, following Brexit worries (which were no doubt brought into sharper focus with comments made by David Davis and Boris Johnson), but the UK manufacturing growth figures exacerbated the problem.
The fact is that a weak pound would normally lead to an increased demand in products from overseas, but uncertainty over what trading rules will look like in the future has curbed this. The very thing that is weakening sterling is affecting the UK manufacturing sector.
Today, we will see the UK construction purchasing managers’ index reading for August. This is expected to dip to 55 from 55.8 the month before. If the reading comes in below that, we could see further sterling weakness. MPs return from their summer recess today and, given the aforementioned comments by Davis and Johnson, there could be some fireworks.
We’re almost a month away from the next in our series of currency forecasts, but there is still much to be gleaned from our most recent instalment. If you haven’t already, please do take the time to download your free copy. You can clearly see the uncertainty we’re heading into. That’s why it’s also so important to make use of your Personal Trader to use a forward contract and lock in an exchange rate.