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UK Manufacturing PMI Shows Surprisingly Little Contraction

UK Manufacturing PMI Shows Surprisingly Little Contraction

Benjamin Spier, Technical Strategist

THE TAKEAWAY: The UK PMI for manufacturing is reported at 49.5, better than expected -> Consumer goods producers see increase in output -> Sterling trading higher

The UK economy fell just short of seeing expanding manufacturing activity for the first time in four months according to Markit’s Purchasing Managers’ Index. The PMI for August was reported at 49.5, beating expectations for a 46.1 survey result and higher than July’s revised 45.2 index. A PMI above 50.0 indicates an increase in sector activity.

UK consumer goods producers saw a solid increase in output, while intermediate goods companies saw a marginal return to growth. The flow of new work remained steady in July, this was an improvement from previously declining new work orders. Manufacturing employment was up for the second straight month in August.

The higher PMI is a good sign for an economy that just saw a third straight quarter of negative gross domestic product in Q2. However, Markit’s Senior Economist Rob Dobson said the improving PMI doesn’t change the underlying picture. “Overall demand remains too lacklustre to provide an imminent and sustained recovery, with investment spending still weak and domestic austerity ongoing,” said Dobson.

The better than expected PMI gave a boost to the British Pound. GBPUSD jumped nearly 30 points and came just short of the key 1.5900 level. Support could be provided around 1.5845, by a month long upward trend line.

GBPUSD 15-minute: September 3, 2012

UK_Manufacturing_PMI_Shows_Surprisingly_Little_Contraction__body_gbpusd.png, UK Manufacturing PMI Shows Surprisingly Little Contraction

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