UK: Manufacturing PMI survey highlights Brexit vote pessimism has eased – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that yhe pound rebounded further yesterday supported by further encouraging evidence that initial Brexit vote fears over the outlook for the UK economy were overdone.

Key Quotes

“Heightened uncertainty which followed the Brexit vote weighed heavily on business confidence in July. However, the release yesterday of the latest UK manufacturing PMI survey for August revealed a sharp snapback higher in business confidence.

The improvement in the manufacturing PMI survey was the largest on record increasing by 5 points to 53.3 in August which was the highest level since October of last year. Markit noted that companies reported that work that had been postponed during July had now been restarted, as manufacturers and their clients “started to regain a sense of returning to business as usual”. The sharp decline in the value of the pound over the last year has significantly improved the UK’s external competiveness which should continue to benefit the manufacturing sector. The new export orders sub-component increased sharply by 3.5 point to 54.9 in August reaching its highest level since June 2014.

The BoE can claim that the improvement in business confidence could have been supported as well by their pro-active and aggressive monetary policy response last month, although the surprising resilience of the UK economy so far also casts doubt on whether the scale of easing delivered was appropriate. If the economy continues to hold up better than expected, the BoE is unlikely to follow through with their current plans to lower rates again to close to zero by year end. In these circumstances, we still see scope for the pound to rebound further in the near-term.”