GBP Euro: Sterling falls 0.40 per cent as UK industry shows disappointing results

The pound kicked off this trading week on poor form, trading around lows of €1.1330 against the euro as investors responded to a surprisingly weak run of data from the UK’s manufacturing and construction sectors. UK manufacturing output fell by its largest margin in five-and-a-half years in April, whilst construction posted a similar smaller-then-expected climb, casting fresh doubts over the state of the British economy.

 According to the Office for National Statistics, UK manufacturing production dropped by -1.4 per cent in April, down from the market forecast of a 0.3 per cent rise and the previous period’s smaller fall of 0.1 per cent.Meanwhile, industrial production eased to 1.8 per cent year-on-year, and construction output printed at a -3.3 per cent contraction.

Rob Kent-Smith, the head of National Accounts at the ONS shared his thoughts on the results:

“Manufacturing fell in the three months to April with electrical machinery and steel for infrastructure projects seeing reduced production. International demand continued to slow and the domestic market remained subdued. However, oil and gas production grew strongly in the aftermath of the Forties pipeline closure at the end of last year.”

Compounding matters, the UK’s trade deficit widened from £-3.220bn to -£5.370bn in April, with a sharp drop in exports to countries outside the EU driving the poor result.

Combined, these figures could make the Bank of England (BoE) question its assumption that the Q1 slowdown was temporary, whilst also diminishing the likelihood of the central bank raising interest rates in August – though this will very much be dependent on future data.

BoE policymaker Dave Ramsden had recently asserted that the rebound in retail sales, consumer credit and stronger business surveys pointed towards an economy gaining momentum, and whilst this is accurate, investors will likely now need more convincing.

In respect to the Eurozone there was very little happening on Monday morning, and investors largely seemed unperturbed by a somewhat confrontational G7 summit on Friday.

The single currency was notably boosted, however, by a speech from Italian Finance Minister Giovanni Tria, who rejected the notion that Italy could leave the Eurozone in the future.

Mr Tria also asserted that the new coalition government would not go on a spending spree.

Investors had previously been concerned that the anti-establishment leadership might push for withdrawal from the euro and run the country’s economy into the ground, but Mir Tria’s comments went far in reassuring investors.

Stock market

Mr Tria also asserted that the new coalition government would not go on a spending spree.

Looking ahead; this week is rate decision week for both the European Central Bank (ECB) and the US Federal Reserve, with the ECB’s decision due on Thursday and the Fed’s due a day earlier on Wednesday.

There will also be a raft of accompanying ecostats for both the Eurozone, the UK and the US, including consumer price inflation readings, earnings and production statistics, to name a few.

If the ECB proves dovish then we could see the GBP/EUR trade higher, but any indication that the central bank is planning on tapering down their quantitative easing scheme before the end of this year could put GBP/EUR under renewed pressure.

Leave a Reply

Your email address will not be published. Required fields are marked *