Sterling Weakens on Softer Manufacturing Data

The pound continues its run of recent losses for a second day running after weak Purchasing Managers Index data for the manufacturing sector showed a marked slowdown. Although the figure was marginally better than expected it was still only 50.1. Anything over 50 highlights expansion in the sector whilst anything below signals contraction. This number, barely over 50 highlights how manufacturing is not contributing to overall economic growth.

Some of this may be attributable to the upcoming referendum although as I have stated previously it may simply be a case of a general slowdown in part as a result of a number of changes to businesses to include both the National Living Wage and pensions. Whatever the cause the likelihood is that GDP may fall lower and this should see the pound struggle to climb higher in the short term. The Organisation for Economic Co-Operation and Development (OECD), a Paris based think tank, has warned that UK GDP could be more than 3% lower if Britain leaves the EU.

GDP for the first quarter currently stands at 0.4%. A technical recession with two consecutive quarters of negative growth is by no means out of the question, Brexit or not, and the prospect should keep sterling on the back foot. Data is light with just UK PMI construction data which is also likely to fare badly and poses another risk for the pound today.

GBP EUR Falls from 4 Month High on New Polls

After two recent polls released in the Guardian signaled the Leave campaign were marginally in front the pound has sunk reversing its recent gains after the bank holiday weekend. A YouGov poll yesterday put both camps level at 41%. As more and more polls are released over these next few weeks then this volatility will undoubtedly remain. What is noticeable however is a stronger approach from the Leave campaign. Brexit campaigners have now put forward an “Australian-style points based immigration system” by 2020 for Commonwealth rather than EU citizens. With the intent of reducing immigration levels from the hundreds of thousands each year to more sustainable levels, it is something that appears to be striking a chord with voters.

This stronger campaigning in my view will carry additional risks for the pound as the uncertainty surrounding a Brexit dawns on the markets. We still have some way to go but there is a very real chance Britain may withdraw from the EU and as we move closer to that date the pound is most likely to be in a weaker position.

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