UK Factory Data Release: Pound Sterling Traders on Edge

• Pound Sterling faces some pressure as the S&P Global UK Manufacturing PMI data remains below consensus.
• UK factory activities remained due to subdued demand from domestic economy and exports markets
• The BoE may start reducing interest rates earlier due to deepening recession fears.

The Pound Sterling (GBP) is experiencing a significant sell-off following the release of the disappointing S&P Global Manufacturing PMI for December. The factory data came in at 46.2, falling short of expectations and the previous reading of 46.4. With the figure remaining below the 50.0 threshold, it indicates a contraction in economic activities for the 17th consecutive month.

S&P Global stated that “UK manufacturing output contracted at an increased rate at the end of 2023. The demand backdrop also remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU. The downturn has hit manufacturers’ confidence, which dipped to its lowest level in a year, and encouraged renewed cost caution with further cutbacks to stock levels, purchasing and employment.

Pound Sterling market movement may be affected by speculation on the timing of potential rate cuts by the Bank of England (BoE). Market participants are currently anticipating rate cuts from May onwards due to concerns about the UK economy potentially entering a technical recession. BoE policymakers have so far refrained from supporting interest rate cuts, but with a likely recession on the horizon, discussions about reducing interest rates may be unavoidable.

Daily Digest Market Movers: Pound Sterling falls sharply on downbeat market mood

• Pound Sterling drops vertically as the United Kingdom’s S&P Global Manufacturing PMI for December failed to match expectations as higher interest rates by the Bank of England and underlying price pressures have narrowed pockets of households.
• The economic data drops to 46.2 as higher interest rates and deepening cost of living crisis hurt demand from the domestic and the overseas market.
• The outlook for the UK manufacturing sector is expected to remain gloomy but suppliers may be forced to offer raw-materials at lower prices, which will ease price pressures.
• Broadly, the Pound Sterling has performed well against the US Dollar as the appeal of risk-perceived assets remain upbeat.
• However, the strength in the Pound Sterling could be hampered as the UK is at risk of a technical recession.
• As per the latest estimates from the UK Office for National Statistics (ONS), the UK economy shrank by 0.1% in the third quarter of 2023.
• The BoE is not expecting any growth in the final quarter of 2023. If the UK economy contracts in the October-December period, it will signal a technical recession (two consecutive quarters of negative growth).
• Contrary to UK ONS GDP data, Finance Minister Jeremy Hunt said that the outlook of the economy is not as bad as the data suggested.
• The case of a recession in the UK economy would compel BoE policymakers to consider rate cuts earlier than previously projected.

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