UK Manufacturing Data – No Rate Cut From the BOE Then

Posted Tuesday, November 1, 2016 by
Skerdian Meta • 2 min read

The UK manufacturing numbers were just released and they show one thing, everything is fine in the Island. This is not the sector where the UK economy relies on, far from it, but it shows the trend of the economy nonetheless. 

So, the numbers were released by the surveying firm Markit and they were pretty good. The consensus was for 54.6 PMI and at 54.3, the actual number was very close to those expectations. It´s still down from 55.5 PMI last month but it´s still a good number nonetheless. 

Let me remind you that 50 is the breakeven/flat level. If the PMI indicator is below 50 then it means that a particular sector is in contraction, above 50 and everything is jolly. If the number would be somewhere in the 50-51 region the expansion would be considered weak, 52-53 means a healthy shape of that sector, 54-55 shows a fast expansion and above 55…  

So, this is a pretty good number considering that this sector the same as most sectors of the UK economy fell into contraction for a couple of months after the Brexit referendum. In fact, this is a damn good number whatever the circumstances. 

I know quite a few central banks in developed economies that would kill for this sort of manufacturing report. The US manufacturing sector is just hanging on a thin rope for dear life, while the Chinese manufacturing only got back above the water a month ago, after many months of holding its breath beneath the surface. Just to compare numbers so you get the idea, 51.2 PMI was the number from China Town this morning and it is considered a success. 

54.3 is actually great even for sceptics like me, but a sceptic will always find glitches everywhere. So, I am sorry to ruin the party for the GBP lovers but as forex traders, we must analyze all aspects of the economic data and read the details in fine print. 

The better manufacturing performance obviously comes from the weak Pound. But, the effects of the weak GBP won´t last forever, they only last a few months after the decline. Afterwards, everything goes back to normal and you lose that advantage. The import prices have gone up at the steepest pace in more than five years, which will be reflected ithe output prices. The new orders are down as well. 

Anyway back to the GBP; as the Markit spokesperson said, if the prices continue to move up and the output remains at these levels which are considered solid, then forget about a rate cut by the BOE (Bank of England). That´s very true, but the GBP doesn´t care much about that. It surged more than 130 pips since yesterday afternoon, but that was due to the fact that the BOE governor Carney accepted to stay for another two years as the head chief. If it wasn´t for Brexit, the GBP pairs would have reached the sky by now. 

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