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Sterling Dives Following Record Low Manufacturing PMI

By Benjamin Spier
01 August 2012 09:10 GMT

THE TAKEAWAY: UK PMI Manufacturing reported at 45.4, sets new 3-year low -> UK economy continues to struggle; looking to monetary action for relief -> Sterling plummets

UK manufacturing contracted at the fastest pace in over 3 years according to Markit’s Purchasing Managers’ Index. The PMI for July was released at 45.4, much lower than the expected 48.4 and down from June’s revised 48.4 index. A PMI below 50.0 indicates a decline in the sector.

Factory production was the lowest in 40 months and new orders also contracted sharply in July, as demand weakened from local and foreign clients. Euro-zone markets were responsible for the main drop off in new export demand in manufacturing, but a decline was also seen in new business from Asian markets. Input prices also declined for the second month, but manufacturing employment actually rose during July.

Markit Senior Economist Rob Dobson wrote about BoE efforts to try and reverse the recession, saying ‘the announcement of additional quantitative easing and launch of the Funding for Lending scheme are too recent to have had an effect. We wait to see whether these will provide the desired and hoped for support to industry later in the year.’

The BoE’s 80 billion Pound Funding for Lending Scheme opened today, seen as a program that could possibly increase credit and stimulate the British economy. The BoE said they will consider further monetary action, maybe even an additionalrate cut, based on the success of the lending program. Tomorrow, the central bank will decide August’s interest rates and asset purchase target; economists expect both to remain unchanged.

The British Pound sold off against the US Dollar following the PMI release that coincided with negative comments from ECB’s Weidmann. The pair is currently trading below 1.5650; 1.5475 has provided support for a month-long range and 1.5750 has provided resistance.

Sterling_Dives_Following_Record_Low_Manufacturing_PMI_body_gbpusd.png, Sterling Dives Following Record Low Manufacturing PMI

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01 August 2012 09:10 GMT