Pound Sterling held firm against the Euro and US Dollar after UK manufacturing data surprised to the upside, reinforcing the view that economic activity remains resilient despite rising cost pressures.
The Pound to Dollar exchange rate (GBP/USD) rose to 1.36323 (+0.22%), while the Pound to Euro (GBP/EUR) edged slightly lower to 1.15929 (-0.04%).
UK manufacturing momentum strengthened in April, with the PMI rising to 53.7, comfortably above expectations and pointing to solid expansion in the sector.
Pantheon Macro said the data highlights how well the economy is holding up in the face of the recent energy shock.
“Another growth indicator holds up surprisingly well,” it noted.
The details of the survey were broadly encouraging, with new orders, exports and employment all increasing. Hiring activity in particular picked up, suggesting firms are not treating the current strength as purely temporary.
Pantheon said the report is consistent with output continuing to expand modestly.
“Output growth was broad-based,” it noted, adding that the PMI aligns with around 0.25% growth on a three-month basis.
Some of the strength likely reflects front-loading activity, as firms attempt to get ahead of potential supply disruptions and higher costs. However, underlying demand also appears to be holding up better than expected.
The data adds to a growing body of evidence that the UK economy has been more resilient than feared following the Iran-related energy shock.
That said, the outlook remains uncertain. Pantheon expects the PMI to soften in May as temporary factors unwind and supply constraints begin to bite more clearly.
Cost pressures also remain a concern. Input prices rose sharply, driven by higher energy costs and broader increases across key industrial inputs.
“Input price inflation hit the highest since June 2022,” Pantheon said, highlighting the risk that cost pressures persist even as growth stabilises.
For the Bank of England, the combination of resilient activity and rising inflation complicates the policy outlook. Stronger growth reduces the urgency for rate cuts, while elevated costs keep upside risks to inflation alive.
For now, Pound exchange rates are benefiting from the stronger growth narrative, though the balance between resilience and inflation will remain key for its direction in the coming weeks.
