Boost for Pound Sterling as UK Manufacturing Activity Hits 3-Year High

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A surge in manufacturing activity in August suggests the UK economy is indeed picking up steam into the latter end of 2017.

The British pound rose against many of its G10 counterparts on the first day of September 2017 after a key industrial survey showed a sharp improvement in sentiment within the manufacturing sector, an important component of the UK economy.

The data suggests the UK economy is picking up a head of steam into year-end following a lacklustre first half.

August’s UK IHS Markit Manufacturing PMI came in at 56.9, far in excess of the economist consensus for a reading of 55.0, and up sharply from the July reading of 55.1 - marking a three year peak for the index.

“The broad-based strength of August’s manufacturing PMI survey adds weight to our view that the sector will put the disappointing first half to the year behind it, and will probably provide a decent boost to GDP growth in the second half of the year,” says Andrew Wishart, a UK economist at Capital Economics.

The manufacturing number came after businesses saw an uptick in new orders within the domestic market while export orders also remained robust during the month.

“The UK manufacturing sector continued to show signs of solid progress during the third quarter, with rates of expansion in output, new orders and employment all gathering pace in August,” says Rob Dobson, a director at IHS Markit.

Robust export orders were driven by continued healthy demand from customers in Europe, the United States, China and Australia which, when combined with a brighter domestic backdrop, helped drive employment gains in the industry to a three year peak.

“The key question is whether this positive start to the second half of the year can be sustained. This is looking increasingly likely during the near-term, given the breadth of the expansion. Business conditions improved across the three main subsectors – consumer, intermediate and investment goods – and at smaller and large-scale producers alike,” says Dobson.