British pound attracts buyer interest on solid UK data

British pound attracts buyer interest on solid UK data

The British pound attracted more buyer interest in Tuesday morning trading, following the positive industrial production data release from the Office for National Statistics, (ONS).

The ONS August data showed manufacturing output rose 0.4% in August from July, while the broader industrial production measure increased 0.2% over the same period. In the three months to August, meanwhile, industrial production grew 0.9%.

UK construction output data was also positive, rising 0.6% on the month in August, driven by a 1.7% rise in new work. That was the first monthly increase since May.

Data boosts BOE rate hike expectations

That upbeat data gives investors even more reason to expect the Bank of England (BOE) to begin raising interest rates sooner, rather than later.

While inflationary pressures are clearly pointing in that direction, some concerns over the momentum of economic growth are making it a tough decision. However, with this latest ONS data print highlighting an active summer for the UK’s industrial sector, it could be enough to allay those fears.

The British pound moved immediately higher when the data were published, moving close to $1.3200. Sterling then retreated a little, but remains well bid.

Weaker sterling level hurts trade measure

However, a separate ONS data release highlighted the problems the UK economy is facing due to the Brexit-induced, weaker British pound.

The UK’s global goods trade deficit widened to an all-time high of £14.245 billion, in August. In July the deficit was £12.829 billion.

The larger goods trade deficit came as the value of imports rose by more than exports. A detail that’s at least in part, due to the weaker value of sterling making it more expensive to import goods into the UK.

However, the generally weaker value of the British pound isn’t a new development and is unlikely to be a key reason for the BOE to stay its hand with regards to raising interest rates.

The next BOE monetary policy meeting is on November 2, when many economists are anticipating the central bank will announce its first rate rise in over a decade.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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