UK Production Levels Meet Target but Fail to Lift Sterling

Data from the UK economy has helped to alleviate some of the concern that the UK is heading back into a recession. Following a troubling run of industry data, question marks over the UK recovery resurfaced. However, production figures for the manufacturing industry in July have met expectations, revealing expansion of 0.3%. Industrial production also showed growth on the month, improving on the decline seen in June, though still marginally missing expectations. The combined data has left sterling relatively undisturbed.

Duncan Higgins, senior analyst at Caxton FX, said: “UK data of late has repeatedly undershot expectations so it comes as a slight relief that output levels remain in positive territory, albeit marginally. However, it’s worth noting that this is July’s data. The [PMI] numbers last week that showed a slowdown in activity across all three leading sectors was for August. For the time being at least the signs point to economic expansion in the third quarter, but there are clear risks ahead as the government’s spending cuts bite.”

Market movement has been fairly limited in reaction to the numbers, though sterling has come off its highs against the US dollar.

“At 0.3%, monthly manufacturing and industrial production levels are hardly convincing, even if it does represent an improvement for the latter. There are still ample reasons for investors to remain concerned about the prospects for the UK economy, and the pound will continue to reflect that caution,” added Higgins.

Higgins concluded: “Sterling seems to have recovered from the lows hit against the euro last week, but both currencies remain extremely vulnerable to any negative data. Until there is a clearer picture of recovery, investors are likely to sell into euro and sterling rallies, which will keep the pair constrained.”

The pound is currently half a percent up on the day against both the euro and dollar, trading around €1.2175 and US$1.5430.


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