UK’s factory activity climbs out of contraction in January after 8 months

The manufacturing sector of the United Kingdom finally climbed out of contraction in January with much of the optimism stemming from Conservative’s victory in the general election on December 12^th that saw the UK exit the EU on January 31^st. Considering the complications of a broader trade deal between the two parties within the current deadline of December 2020, however, the reading was still under pressure, as per the analysts.

UK’s Final Manufacturing PMI Came Out At 50.0 In January

IHS Markit announced the UK’s final manufacturing PMI at 50.0 in January that came marginally above the analysts’ estimate of 49.8 that still expected the factory activity to keep in the contraction zone. In December, the figure was capped at a much lower 47.5. As per IHS Markit, the relatively lower political uncertainty following the UK’s general election helped the business confidence and new orders to post mild recoveries in January. Production volumes, it added, were also seen stabilizing this month.

While the manufacturing PMI has remained under 50 since May 2019, December’s reading was branded the worst since 2012. From May to December marked the longest streak for the UK’s factory activity to keep under 50 since 2009.

Accounting for 10% of the UK’s economy, the manufacturing sector’s report adds to the positive economic data for the UK in January. Governor Carney of the Bank of England (BoE) had hinted at the same optimism while justifying the central bank’s decision of keeping rates unchanged in its policy meeting last week.

New Orders Noted The Fastest Growth Rate Since April 2019

The growth rate in the new orders was recorded as the fastest since April 2019. Export orders, on the other hand, continued to remain under pressure, much of which was attributed to the poorly performing economies in Europe.

The auto industry along with a few others that are known to depend heavily on just-in-time delivery, however, expressed a grimmer outlook for operations in the upcoming years once the border checks are implemented following the UK’s exit from the EU.

The BoE recently echoed a similar view as it announced a few of the trade frictions to be inevitable, in light of which, the central bank anticipated the UK’s annual growth rate (sustainable) to drop to 1.1% in the upcoming years. Since the financial crisis, the rate has kept steady around 1.6%.

GBP/USD is severely under pressure in the forex market on Monday. The currency pair has dropped from 1.3180 to 1.3045 around which it is currently settling.