UK Preliminary Manufacturing PMI unexpectedly drops to 47.4, Cable hits session lows

The UK manufacturing sector activity dropped at the fastest pace since July 2012 in December, the preliminary report from IHS Markit showed this Monday. 

The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped to four-month lows of 47.4 in December versus 49.4 expected and 48.9 – November’s final reading.

Meanwhile, the Flash UK Services Business Activity Index for December came in at nine-month lows of 49.0 versus November’s final readout of 49.3 and 49.6 expected.

Chris Williamson, Chief Business Economist at IHS Markit, commented on the survey

“December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.”

"New orders fell for a fifth straight month, causing jobs to be cut for a fourth successive month as firms scaled back operating capacity in line with weakened demand.”

"The principal drag on order books was falling export sales, with overseas demand for UK-produced goods and services slumping in the past two months to an extent not seen since at least 2014.”

FX Implications

UK Preliminary PMIs disappointment added to the latest leg lower in the pound, with GBP/USD now meandering near session lows of 1.3335. The Cable failed to sustain the early spike above the 1.34 handle.