British Pound exchange rates remain supported as UK manufacturing expands, although UK economists expect output growth to slow as earlier front-running unwinds.
The British Pound traded slightly lower against the Euro and Dollar on Monday after the final UK manufacturing PMI was revised down, although the details still pointed to healthy factory activity.
The S&P Global manufacturing PMI slipped to 51.9 in July from 52.5 in June, missing both the 52.8 consensus and the earlier flash estimate.
Pantheon Macroeconomics said the headline decline should not be overplayed, as much of the weakness came from a sharp reduction in materials inventory building rather than a deterioration in the main activity measures.
“The output index of the PMI actually rose month-to-month,” Pantheon said, adding that the survey remains consistent with manufacturing activity increasing by around 0.6% over three months.
That would represent a slowdown from the latest official reading of 1.5% in May, although Pantheon noted that “the PMI has been too downbeat on activity recently”.
New orders also improved, rising to 52.3 from 50.6, while employment remained broadly stable at 50.1.
Pound Sterling recovered part of its earlier losses last week, although both GBP/USD and GBP/EUR remained lower over the period shown.
British Pound Outlook: Forward Indicators Point to Slower Factory Growth
UK economists at Pantheon still expect the pace of expansion to cool as the boost from firms bringing forward activity earlier in the year fades.
“A deterioration in some of the forward-looking activity balances remains consistent with our call that some of the front-running that took place earlier in the year will unwind,” it said.
The future output balance fell to 68.7 from 69.4 and was revised sharply lower from the flash release, while the new orders reading was also revised down.
There was better news on inflation.
The input price balance dropped to a five-month low of 66.0 from 76.6, while the output price balance fell to 61.5 from 64.8.
Pantheon said “rate setters will be comforted by price pressures for manufacturers easing in July”, a development that may reduce pressure on the Bank of England to tighten policy further.
For the British Pound, the release was broadly neutral: factory activity is still expanding, but the softer forward indicators point to a more moderate pace in the months ahead.
Our currency coverage draws on live market data, official economic releases and published bank research.
