Talking Points
- UK manufacturing surges in December on strong demand and new order growth.
- Data point to a +1.5% quarterly growth rate for UK in Q4'16.
- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.
The British Pound rallied off its early lows after the December Markit Manufacturing PMI came in at 56.1, against expectations of 53.3 and a revised prior month reading of 53.6, driven by improved domestic and overseas demand and new order growth.
According to Rob Dobson, senior economist at IHS Markit, the rates of expansion in output and new orders were among the fastest seen during the survey’s 25-year history. “Based on its historical relationship against official manufacturing output data, the survey is signaling a quarterly pace of growth approaching 1.5%, a surprisingly robust pace given the lackluster start to the year and the uncertainty surrounding the EU referendum.”
The data also show that the boost to competitiveness from the weak exchange rate was the key driver of the recent turnaround and that higher inflation expectations remain a very real concern.
“On the prices front, higher input costs continued to feed through to increased selling prices, with rates of inflation remaining among the highest seen during the survey history. Of the companies citing a cause of higher costs, 75% linked the increase to the exchange rate,” according to Markit’s Dobson.
Chart 1: GBP/USD 5-minute Timeframe (Jauary 2 to 3, 2017)
The Markit UK services data will be released on Thursday January 5, with the market expecting a slight downturn to 54.7 from November’s 55.2.
--- Written by Nick Cawley, Analyst
To contact Nick, email him at nicholas.cawley@ig.com
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