The GBP to Euro exchange rate rose to a fresh 18-month high of 1.2400 briefly yesterday as British manufacturing data printed optimistically but Sterling actually posted daily declines against most of the other major currencies.
It was reported yesterday morning that the UK manufacturing industry is currently expanding at its fastest rate since early 2011. The 4.4% annual growth in the sector bodes well for second quarter GDP performance and could help persuade policymakers at the Bank of England to start tightening monetary policy slightly sooner-than-expected.
On a monthly basis manufacturing output increased by 0.4%, as did the wider measure of industrial production. The data marked the fifth consecutive month of expansion and acts as a sign that the sector could finally be recovering from the financial crisis – although output is still around 8% below its pre-crisis peak.
Later on in the day it was reported that the UK economy as a whole has actually surpassed the pre-crisis peak struck back in January 2008. The 0.9% improvement in economic output between March-May this year means that total GDP is currently 0.2% higher than it was before the global recession.
It was also announced that from September the Office for National Statistics (ONS) will start including illicit activities such as drug dealing and prostitution in its GDP calculations. It is estimated that the change in statistical measurements will lead to a 5%, or £65 billion, boost in Gross Domestic Product.
Ignoring the moral hazard of including illegal activities, it is difficult to see how the ONS will actually measure such things. Most data will come in the form of ‘estimates’, which could potentially bring into question the efficacy of future growth figures.
It is not just black market activity that could prove controversial though; the inclusion of defined benefit pension schemes and Research and Development expenditure raises the risk of, at best, overstating economic output and, at worst, double-counting it.
Despite this seemingly positive stream of UK data the Pound struggled against most of the majors. GBP/USD declined by around half a cent, as did GBP/CAD, whilst both GBP/AUD and GBP/NZD depreciated somewhere in the region of one whole cent.
The US Dollar was boosted by a sturdy JOLTS labour market reading of 4.455 million while the Canadian Dollar benefitted from a surge in crude oil prices. The ‘Aussie’ was boosted by a report from Morgan Stanley predicting that AUD will appreciate by a further 6.4% later this year and the ‘Kiwi’ benefitted from hopes that the Reserve Bank of New Zealand is going to hike the benchmark interest rate from 3.00% to 3.25% later on this evening.
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