Bye bye Brexit slump? Pound jumps on surprise rebound in manufacturing and improved confidence among British businesses
Britain's post-referendum prospects received a shot in the arm yesterday as new figures revealed a rebound in manufacturing, causing the pound to rise sharply against the dollar.
Growth in UK manufacturing smashed expectations in August, suggesting that the sector has weathered the Brexit storm.
And new polling figures out on Friday will show that business confidence recovered dramatically in August, giving further cause for optimism.
Yesterday's Markit purchasing managers index (PMI) for manufacturing jumped to 53.3 in August, the highest in 10 months, and far above expectations of 49.
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Surpassing the 50 milestone which denotes growth, it represented a huge turnaround from the previous month, when the manufacturing PMI slumped to 48.3, its lowest level in more than three years.
The data caused the pound to spike almost one per cent against the dollar, to $1.327, as traders rushed to buy sterling.
"British manufacturers have responded to the post-EU referendum landscape by adopting a positive mind-set and adapting to the conditions in front of them to source new opportunities for their business," said Dave Atkinson, head of manufacturing at Lloyds Banking Group.
"Growth is being driven by exporters, with manufacturers experiencing increased demand for goods from both existing markets and unchartered territories due to the weakened pound. The manufacturing community has been agile in its response to this influx of orders."
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Friday's YouGov research, conducted with the Centre for Economics & Business Research, shows that the business confidence index surged back to 109.7 in August, meaning it has made up more than half of the loss endured in the aftermath of the Brexit vote.
The increase in optimism is attributed largely to improved forecasts driven by revenues from domestic sales and exports.
“For the most part, the panic we saw straight after 23 June has been replaced by calm," head of YouGov Reports Stephen Harmston said. “In the short term at least, a more positive outlook from businesses and consumers will help grease the wheels of the economy – spurring spending and investment.”
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The positive signs mean Bank of England governor Mark Carney may be feeling nervous about his decision to go for extra QE so soon after the Brexit vote according to Chris Beauchamp, chief market analyst at trading platform IG. He added: “The FTSE 250 is still just 2.5 per cent away from its all-time high, and while cautious voices will want to wait for the more important services PMI, UK plc looks very much in demand at present.”
Meanwhile, gloom prevails in the the Eurozone's manufacturing sector where the PMI fell to a three-month low last month. Anecdotal evidence suggests that the strengthening of the euro and reduced sales to the UK were partly to blame for the order book slowdown.