GBP/USD: Recovery mode intact on 1.32 after UK Final Dec Manufacturing PMI disappoints with 47.5

The UK manufacturing sector activity contraction slowed a bit in the month of December, the final report from IHS Markit showed this Thursday. 

The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) was revised higher to 47.5 in December versus 47.6 expected and four-month lows of 47.4 – December’s first reading.

• UK Preliminary Manufacturing PMI unexpectedly drops to 47.4

Key Points

Output, new orders and new export orders fall sharply.

Job losses reported for ninth straight month.

Rob Dobson, Director at IHS Markit, commented on the survey

“The UK manufacturing sector took a turn for the worse at the end of 2019. Output fell at the quickest pace in seven-and-a-half years as new order inflows decreased and Brexit safety stocks were reduced. With demand weak and confidence remaining subdued, input purchasing was pared back sharply and jobs cut for the ninth successive month.”

“The downturn is still being hardest felt at companies reliant on investment and business-to-business spending. The steepest reduction in output was at investment goods producers, as continued uncertainty meant new orders and new export business suffered the steepest contractions in over a decade. Intermediate goods producers also experienced marked drops in output and new work received. There was a pocket of growth, however, as consumer goods production edged higher. On this basis, it looks like UK manufacturing and the broader economy may both start the new decade as they began the last, too reliant on consumer spending and still waiting for a sustained improvement in investment levels.”

FX Implications

The GBP bulls ignore the upward revision to the UK Manufacturing PMI for December, as the data misses estimates. GBP/USD keeps its recovery mode intact near 1.3220 region on the data release, having found support just ahead of the 1.32 handle.