UK: Manufacturing and trade feel the effects of Brexit - ING
|In view of the James Knightley, Senior Economist at ING, UK manufacturing appears to be responding to the competitiveness boost from the Brexit related plunge in the pound, but the J-curve effect means no improvement in the trade balance yet.
Key Quotes
“UK manufacturing output has surged in November, rising 1.3%MoM, well ahead of the consensus expectation of a 0.5% rise. Mining and quarrying output was up 8.2%, oil and gas output was up 10.3% and utility output was up 1.9%. This means that industrial output in total was up 2.1% in November, suggesting the sector will make a decent contribution to 4Q GDP. We expect more good news in coming months given the strength of business surveys, such as the purchasing managers' index. Currently, the annual rate of manufacturing growth is 1.2% YoY, but the PMI is historically consistent with annual growth of around 3%YoY. Certainly, the pound's plunge will boost international competitiveness and therefore should be supportive for exports of manufactured goods.”
“For now, the UK trade numbers are exhibiting the traditional J-curve effect with the UK's November trade deficit deteriorating to -£4.2bn versus expectations of a -£3.5bn outcome. The pound's fall makes imports more expensive, but because of contracts in place and the time to find alternatives it means demand changes modestly, leading to a higher value of imports. Meanwhile the value of sterling exports take time to adjust to the competitiveness boost from a weaker currency. However, over the coming year we expect to see the weak pound's boost to competitiveness becomes more broadly felt, something we appear to be seeing in the manufacturing numbers.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.