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Strong Comeback for the UK Manufacturing PMI

August 3, 2020 By Mircea Vasiu

The UK manufacturing sector pulled a strong comeback as the economy reopened after the lockdown. Business sentiment rose to a 28-month high, while domestic new orders rose as well.

Solid improvement in the sector was seen in July as output grew to a 32-month high on the back of the strong new orders. In fact, the new orders for the sector grew at the fastest pace since 2018 – an encouraging sign moving forward.

Details of July UK PMI Manufacturing Report

The third quarter started on a strong note for the manufacturing sector in the United Kingdom, as domestic demand rose. However this was overshadowed by overseas customers as exports fell for the 9th month in a row.

The bounce back above the 50 level shows a sector that came back to growth – a healthy sign of economic recovery. The question moving forward is if this growth will persist or the road ahead will be a bumpy one.

Confidence rose to levels not seen since 2018. Over 60% of the companies expect production to be higher one year from now, and only 12% of firms forecast a contraction. These are important aspects to consider taking into account the ongoing Brexit negotiations and the December deadline that is just around the corner.

The positive UK manufacturing report failed to boost the British Pound. In fact, the GBPUSD, the flagship currency pair, dropped from above 1.31 on the news and now threatens to break below 1.30.

However, this is more of a tactical play rather than a reaction to fundamental economic data. As today marks the first trading day of the month, traders book profits after the tremendous rally seen all last month.

The 1.30 level is critical for the GBPUSD pair. As the pair managed to retrace the entire move lower triggered by the coronavirus pandemic in late March, the 1.30 should act as a support. Any buyers ahead of the Bank of England on Thursday will likely have a target for their trades that extends beyond the Non-Farm Payrolls release on Friday.

Coming back to the UK PMI Manufacturing report, the road to travel remains long and precarious. Like in any economic recession, the way out of it is uneven and marked with inequalities in different economic sectors. Therefore, it is important to see several months of consecutive growth before claiming that the worst is over.

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