After a few less than negative pieces of economic data out of the UK came out recently leading some to believe that the UK appreciation is a safe bet in advance of what seems an imminent BOE hike, today all the GBP bulls got another cold dose of reality after the PMI came at 7 month lows. From Reuters: "Manufacturing
activity grew more weakly than expected in April, at its slowest pace in
7 months, and a sharp slowdown in new orders cast a cloud over a sector
that has been a rare bright spot in the UK economy. The Markit/CIPS manufacturing PMI headline index,
published on Tuesday, fell to 54.6 in April, its lowest since
September, from a downwardly revised 56.7 in the previous month and well
below the 56.9 consensus forecast in a Reuters poll on Friday." So to update: Japan slashes growth forecasts, Europe is overheating and due for a major monetary tightening, China already is (although the PBoC it pushed the parity to just above 6.50 last night so as not to seem too desperate), and the UK is in shambles. And somehow reverse decoupling is still expected to work? Judging by the now traditional futures levitation each and every morning the answer is a resounding yes.
More analyst comments from Reuters:
MARK LEE, HEAD OF MANUFACTURING AT BARCLAYS CORPORATE BANKING
"The manufacturing sector has experienced an unexpectedly strong first quarter, which saw a spike in restocking, cementing the fact the industry is 'back in business'. Despite a fall in the April PMI figures, the manufacturing recovery remains on track with the figures showing growth for the past 21 months.
"The headwind now facing manufacturers, as we enter the new tax year, will be the fiscal changes impacting household spending and the prospect of impending interest rate hikes. What manufacturers now need is a steady and sustainable recovery and that certainly remains evident within our client base."
JAMES KNIGHTLEY, ING FINANCIAL MARKETS
"The UK manufacturing purchasing managers' index for April has shown a fairly chunky slowdown in growth.
"It appears that new domestic orders have dropped substantially, which is worrying for future production and also employment prospects.
"There was a dip in the output prices component, but it is still the third-highest index reading sine the series began in 1999.
"Consequently, the issue of weak growth and high inflation will continue to trouble the BoE. Given they have a mandate of targeting 2 percent inflation in two years' time the worrying outlook for growth favours patience from BoE policymakers.
"As such, today's report further diminishes the likelihood of a rate hike this week, with November looking the most likely point for policy tightening at present."
PHILIP SHAW, INVESTEC
"The results are disappointing, but it's unclear whether the drop in the index reflects a genuine slowdown in demand for manufactured goods or whether it reflects a degree of supply disruption arising from the tsunami in Japan in March.
"Whilst that's unclear, it does add further grist to the mill to the argument to keep interest rates on hold.
"For now, even at 54.6 the level of the PMI continues to indicate healthy expansion in manufacturing output."
HETAL MEHTA, DAIWA CAPITAL MARKETS
"Although the decline in the headline index is significant it is not overly concerning. Manufacturing growth appears to be moderating back to more 'normal' levels, and the modest increase in new orders supports this."
"The weak manufacturing growth in March, combined with this early indication of activity at the start of Q2 suggests manufacturing will make a smaller contribution to GDP growth than in the past few quarters."
"The good news from the survey is that employment in the manufacturing sector is still rising, and that inflationary pressures seem to be waning. This adds to the almost foregone conclusion that the Bank of England will not hike interest rates when it meets later this week."
VICKY REDWOOD, ECONOMIST, CAPITAL ECONOMICS:
"On the face of it the figures look pretty disappointing. The manufacturing recovery is coming off the boil a bit and that was the one part of the economy that was growing. At the margin this gives another reason for the MPC to hold fire on interest rates. We don't think rates will rise until 2013."
ROB DOBSON, SENIOR ECONOMIST AT SURVEY COMPILER MARKIT
"The manufacturing growth spurt looks to be fading rapidly.
"Although output growth was still expanding at an above long-term average clip, and solid job creation continued, the sector cooled further in April from the near record pace of expansion seen at the turn of the year.
"The outlook has deteriorated sharply, with new orders growth having collapsed from a booming pace at the start of the year to only register a weak influx of new business in April.
"Manufacturers reported that the domestic market has weakened considerably in recent months, with consumer demand in particular shifting into reverse gear. The sector appears to now be completely reliant on export orders to sustain growth.
"On the prices front, there was welcome news from a further easing in the rate of increase in input costs from January's record peak.
"This adds weight to the Bank of England's view that inflationary pressures are transitory and suggests that policymakers will continue to hold fire on the interest rate trigger."