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GBPUSD Higher Following Strong UK Manufacturing Data

James Boston
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GBPUSD Higher Following Strong UK Manufacturing Data

The UK’s industrial sector has begun the fourth quarter in a strong position according to the October Purchasing Managers Index (PMI) data released by Markit Economics. The British Manufacturing PMI has reached a three month high to come in at 53.2, not only was the magnitude of this gain surprising to the market but the fact that a slight pull back was forecast for this latest reading adds to the feeling of underlying strength in the UK manufacturing sector, for comparison purposes the September reading was 51.6 while the forecast number was 51.2.

Today’s reported growth in the UK’s manufacturing sector is of particular significance given the concerns that have been growing around the sector. It is no secret that the UK’s industrial sector is by no means contributing what it should to this recovery, this is somewhat accepted however in the context of other sectors outperforming. The success of the UK’s emergence from recession and it’s rise to the top of the G7 league table in terms of economic performance has served to mask the inherent weakness in the manufacturing area of the economy, weakness which was caused by a lack of investment in the early stages of the recovery and one which is being perpetuated by a persistence in this underinvestment.

The bright periods of growth in manufacturing experienced in manufacturing in the UK had fallen by the wayside over the summer months, to be replaced by several moderate growth and even contractionary periods. The growth in today’s PMI reading, although lower than earlier in the year, bodes well for a fragile manufacturing sector, particularly when the fundamentals behind the growth are examined. The key driver is domestic demand, which is not only offsetting falling international demand due to global weakness, it is of sufficient magnitude to contribute to an overall improvement in the sector. It will be a while before manufacturing resumes it’s rightful place as a key engine within the UK economy, but today’s readings are significant step in the right direction.

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