Sterling's Uptrend Intact as Manufacturing PMI show UK Exports Strengthen the Most in Four Years

The UK's manufacturing sector continues to enjoy strong export order books while the sector continues to expand at rates well above trend.

Pound Sterling appeared to shrug off a surprise fall in the IHS Markit manufacturing PMI data on Thursday, when it clung to earlier gains over the Dollar, Euro and broader G10 basket.

January’s IHS Markit survey showed the manufacturing index slipping to 55.3, down from 56.2 in December and below the consensus expectation of economists for an increase to 56.5.

However, Sterling's reaction confirms the obvious - the manufacturing sector continues to expand at a solid pace and will continue to provide support to the economy.

Nevertheless, the result marks the second consecutive month of decline for the index, taking it back to a level last seen in June 2017, although it still remains substantially above its long term average of 51.7.

"The detail of the report showed that most of the decline in the headline PMI resulted from a moderation in the pace of current output and new orders. Still, with the flow of new orders continuing to come through at a healthy rate, firms registered an improvement in prospects for future activity. Accordingly, manufacturing firms continued to hire additional workers – the pace of which picked up over the month," says Nikesh Sawjani, UK Economist with Lloyds Bank's Commercial Banking unit.

The IHS Markit PMI is a survey that measures changes in business conditions in the manufacturing industry from month to month. It asks respondents to rate current conditions across a range of areas including employment, production, new orders, prices, supplier deliveries and inventories.

“Manufacturing output continued to rise at a solid pace, although the rate of expansion eased to a six-month low...Sector data signalled solid increases in output and new orders across the consumer, intermediate and investment goods sectors,” IHS Markit say, on releasing their findings.

There is however undeniably good news to be found in findings that the recent trend of rising export orders gained further momentum during January, which is good news for the Pound, with foreign demand rising at its fastest pace for over four years.

Much of this increased demand came from North America, China, Europe and the Middle East.

"The fall in the UK manufacturing PMI in January suggests that growth has slowed a little at the start of the year. But the big picture is that the sector is still performing well by recent standards," says Ruth Gregory, an economist at Capital Economics.

The Pound was quoted broadly higher ahead of and after the release, with gains spanning the breadth of the G10 basket.

Sterling was marked up by 0.37% at 1.4251 against the Dollar while the Pound-to-Euro exchange rate was quoted 0.12% higher at 1.1449.

Manufacturing has been a relative bright spot for the UK economy ever since the Brexit vote of June 2016. It first received a boost from the double digit devaluation of the Pound and has since gone on to receive another dividend from the sharp pickup in global economic growth that was seen in 2017.

Thursday’s data comes closely on the heels of the final instalment of GDP data for 2017, which showed the economy regaining more of its lost momentum during the final months of the year.

Quarterly GDP growth came in at 0.5%, up from 0.4% in the third quarter and the best three monthly performance seen in that year.

As a result, annual GDP growth was 1.8% for 2017 as a whole, just 0.1% below the rate seen in 2016, despite a sharp slowdown that occurred during the first half when quarterly GDP growth slipped to 0.3%.

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