GBP Traded Lower After July PMI Misses Consensus

The British Pound has been trading slightly lower against both the Euro and Dollar after the release of the final UK manufacturing PMI for July. The index slipped to 51.9, missing both the consensus and earlier flash estimate, but a closer look at the data reveals that much of the weakness came from a sharp reduction in materials inventory building rather than a deterioration in main activity measures.

Pantheon Macroeconomics pointed out that the output index actually rose month-to-month, consistent with manufacturing activity increasing by around 0.6% over three months. This is a slowdown from the latest official reading of 1.5% in May, but Pantheon noted that the PMI has been too downbeat on activity recently.

New orders also improved, rising to 52.3 from 50.6, while employment remained broadly stable at 50.1. The input price balance dropped to a five-month low of 66.0 from 76.6, and the output price balance fell to 61.5 from 64.8, which Pantheon said would 'comfort rate setters' and reduce pressure on the Bank of England to tighten policy further.

UK economists at Pantheon still expect the pace of expansion to cool as the boost from firms bringing forward activity earlier in the year fades. They noted that a deterioration in some forward-looking activity balances remains consistent with their call that some of the front-running will unwind.