GBP Drops As UK Manufacturing Is At A 17 Month Low

The UK Manufacturing Purchasing Managers' Index (PMI) from Markit/CIPS came out on Tuesday and the numbers were not very encouraging. The PMI for April 2018 came in at 53.9 which was a full point lesser than March’s number of 54.9.

This was the lowest rate recorded in the last 17 months.

Towards the end of last week, the Bank of England (BoE) released data which showed that Britain’s economy showed hardly any signs of growth during the first quarter of 2018.

This along with the dip in the manufacturing PMI shows that there has been low production, hardly any new business expansion initiatives and a slowdown in employment opportunities. The pound sterling took a hit due to these poor numbers and for the first time in nearly three and a half months dropped below the $1.37 mark.

In a statement, Samuel Tombs, economist at consultancy Pantheon Macroeconomics said

All in all, Markit's manufacturing survey provides more evidence that the economy has fundamentally slowed this year, strengthening the case even more for the MPC to hold back from raising interest rates later this month

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Bank of England Faces Pressure Over Interest Rate Hike

The BoE had plans of rolling out an interest rate hike in the near future but is now under pressure to delay the hike due to the poor market data. The BoE also reported on Tuesday that Brits ended up borrowing only £254 million in March which was extremely low given the fact that a poll from Reuters forecasted borrowing levels to touch £1.45 billion.

One of the reasons the analysts attribute to the poor performance of the UK economy in Feb and March was due to the cold weather. The UK experienced freezing temperatures during these two months which impacted businesses and day-to-day life. However, things haven’t gone well in April as well and the weather did not play any part in the poor performance.

Unsecured consumer lending year-on-year grow rate also dropped to 8.6 percent which was its lowest since Nov 2015. The pound sterling could end up dropping even further as market analysts will now wait for Thursday as services, construction and composite readings are expected to be published.

If these readings also reflect a drop in value, then it will be highly unlikely that the BoE will proceed with an interest rate hike in May.

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