Yesterday it was announced that the British Manufacturing Sector improved at its fastest rate for over two years as Production and New Business rose significantly. Despite the robust PMI print, the Pound found itself trading lower against the majority of its currency peers as markets remained cautious of Sterling in light of last week’s discouraging downward revisions to historical UK GDP.
The fabled Great British economic revival appears to be taking shape, finally, with improvements witnessed recently in each of the most important economic indicators. In the first three months of 2013 strong Service Sector output helped Gross Domestic Product accelerate by 0.3% and during the second quarter this positive momentum spread to other sectors of the economy. In May the Pound garnered support from all corners of the globe as the UK Manufacturing PMI struck 51.5, the Construction PMI hit 50.8 and the Services PMI advanced to 54.9. This impressive tripartite of optimistic data was accompanied by a stronger-than-anticipated 2.1% rise in UK Retail Sales.
UK Manufacturing output grew even further during June, registering a score of 52.5 – its highest level since May 2011. Rob Dobson of Markit, who compiled the report, said:
“The UK Manufacturing Sector made positive strides on the recovery path during the second quarter of this year. June saw Production and New Order growth hit rates not seen since early 2011, as a brightening domestic market and resilient overseas demand led to a broad-based expansion across the sector.”
Later on this morning the UK Construction Purchasing Managers Index is forecast to print at 51.2 and tomorrow’s Service Sector score is predicted to remain in positive territory above 54.0. This resilient economic docket has led the majority of analysts to estimate that the UK economy grew by around 0.5% in the second quarter.
Later on in the week the Bank of England, headed by Canadian Central Banker Mark Carney for the first time, will decide whether or not to modify the benchmark interest rate or add any additional funds to the asset purchasing target. The benchmark interest rate currently stands at a record low of 0.50% and the asset purchasing target is £375 billion; in light of the improved British economic outlook it is unlikely that Carney will opt to change things up so soon after taking over the role from Sir Mervyn King.
However, it is thought that later down the line the Canadian will look to introduce a more flexible inflation target that also incorporates economic growth and labour market performance, in a similar ploy to that of the Federal Reserve in the United States. This remit would allow Carney to embark on further quantitative easing in attempt to foster growth in the British economy and hopefully bring it up to exit velocity.
With Q2 GDP set to come in at an encouraging 0.5% and all three PMI results forecast to remain the right side of the 50.0 level that separates growth from contraction it is entirely possible that Sterling could claw back some of its losses – that were a result of last week’s GDP revision – against the majority of its currency peers later in the week provided BoE policymakers keep their hands out of the QE cookie jar.
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