Private DCN Private DCN - Sterling

Britain appears to be “making things” as manufacturing increases

By Ricky Bean January 4th, 2017

As we finished the first working day of 2017 we saw sterling (GBP, pound) trading lower against the US dollar (USD) – caused by a “flight to safety” following the increased geo-political risks due to events in Turkey and Syria and positive data out of the US.

We did, however, have a positive start for the UK as the closely watched manufacturing data was released. The manufacturing sector has been watched for the last few years, ever since former Chancellor, George Osbourne stated “We’ve got to get Britain making things again”. This once again came back into the limelight when sterling weakened dramatically following the Brexit vote. The signs are looking good, as 2016 finished well in terms of manufacturing growth. According to the latest Purchasing Managers Index (PMI) survey, manufacturing growth was at its fastest for more than two years and indicated that the weak pound had boosted exports. This could in turn lessen fears of a slowdown in the Brexit environment.

Continuing with that theme, the UK’s ambassador to the European Union (EU), Sir Ivan Rogers, has resigned. It was expected that Sir Rodgers was to play a key role in Brexit talks, which are expected to start in the coming months. A government spokesperson stated “Sir Ivan has taken this decision now to enable a successor to be appointed before the UK invokes Article 50 by the end of March. We are grateful for his work and commitment over the last three years.” How this will affect negotiations is yet to be known. Meanwhile sterling remains on the back foot, despite retracing some of yesterday’s losses. Political uncertainty continues to circle the airwaves and with the Supreme Court ruling on Brexit expected in January this is not going away anytime soon. Should the Supreme Court rule in the Government’s favour, Prime Minister, Theresa May can then proceed with her plans to invoke Article 50 by the end of March and importantly without seeking parliamentary approval. If the Supreme Court does not rule in favour of the Government, the High Court ruling will stay in place and parliament will get to vote on the legislation, which could delay activating Article 50. Until this is resolved, sterling remains vulnerable.

Looking to the day ahead, we have another take on the economy in the form of construction Purchasing Managers Index (PMI) data. This is expected to once again state that we have seen steady growth in the sector.