Factory Sector Sees Significant Increase
The British Pound has been well bid over Tuesday’s European session in response to a further set of strong economic data. The IHS Markit Manufacturing index was seen rising at its fastest pace in six years over the prior month. The factory sector recorded a 30-month high of 55.2 in August, improving on July’s 53.3 reading and marking also the third consecutive month of a reading above the neutral 50 mark.
The reopening of the UK economy following lockdown has seen a steady pickup in demand and activity across the board, reflected in last month’s data, which continues to suggest that the recovery is happening at a quicker pace than previously forecast.
Looking at the breakdown of the data, manufacturing production was seen expanding at its quickest pace since 2014. Within this reading, the largest increases were seen in the intermediate goods subsection while investment goods producers registered the slowest pace of growth over the month.
Perhaps the most encouraging aspect of the data release was the heavy increase in new orders, which rose at their fastest pace since November 2017. Along with this new export orders were also seen rising over the month, marking their first expansion in ten months.
Employment Component Craters
Despite the mostly optimistic details of the release, there were some issues; manufacturing employment was seen declining at its fastest pace in 11 years, raising further fears over the outlook for the UK labour market as the UK government furlough scheme comes to an end. Many industry forecasters have signalled concern over a potential employment cliff edge in the coming months as UK firms struggle to maintain staff levels without the government aid they have been in receipt of over recent months.
Commenting on the data, Rob Dobson (Director at HIS Markit) said: “The recovery of the UK manufacturing sector gathered pace in August. Output expanded at the fastest rate in over six years as new work intakes rose to the greatest extent since November 2017, led by an upturn in domestic demand and signs of recovering exports. Business optimism also remained encouragingly robust and close to July’s recent peak”.
However, Dobson was also keen to stress the uncertainty in the outlook and offered caution, saying: “Given the fragility of demand and uncertain outlook, both in terms of COVID-19 and Brexit, policymakers may struggle to prevent a ‘surge-then-slump’ scenario from developing”.
GBPUSD (Bullish above 1.3191)
From a technical viewpoint. GBPUSD continues to trade higher within the bullish channel which has framed the post-lockdown recovery. Price has recently moved above the 1.3191 level and while this level holds as support, the near-term outlook remains bullish with the 1.3516 level the next upside target to note.
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