The IHS Markit/CIPS Purchasing Managers’ Index (PMI) for February set the tone for a subdued start to the week for the pound. The British manufacturing sector reported its slowest output growth since May due to Brexit and pandemic-related delays. UK manufacturing has performed better than consumer-facing sectors of late; however, the PMI’s key output component showed growth slipped further after a sharp drop in January. The broader manufacturing PMI edged up to a two-month high of 55.1, exceeding forecasts. However, the upward movement reflects longer delivery times and higher costs, which recently have represented a constraint.
Consumer borrowing figures pointed towards a slump in spending on non-essential goods after official retail sales data showed overall purchases fell by 8.2% in January as England returned to lockdown. The Bank of England expects households to unleash their savings when restrictions are lifted, but the scale of the spending splurge is uncertain.
The downbeat data, combined with positive figures from the US economy, caused the pound to dollar rate to dollar rate to slip to 1.38 overnight.
US Manufacturing PMI Rises to Fresh Three-Year High
Business activity in the US manufacturing sector grew at its strongest pace in three years. The ISM Manufacturing PMI rose to 60.8 in February from 58.7 the previous month, exceeding market expectations of 58.8. The Employment Index also improved, as did the Prices Paid Index, which rose to its highest level since July 2008, and the New Orders Index.
Speaking online to the Institute of International Bankers yesterday, Fed Governor Lael Brainard talked about the preparation that should be made for another shock to the financial system: “We should not miss the opportunity to distil lessons from the Covid shock and institute reforms so our system is more resilient and better able to withstand a variety of possible shocks in the future, including those emanating from outside the financial system,”
A quiet day in the UK’s economic data calendar means all eyes are on Wednesday’s Budget, which chancellor Rishi Sunak has suggested is going to provide support for people as lockdown rules are eased.
A lack of notable data in the US calendar means a speech around monetary policy from Governor Brainard – an advocate of looser policies – will be closely monitored by investors.
The House of Representatives passed President Joe Biden’s $1.9 trillion coronavirus relief bill early on Saturday, which will now head to the Senate – the bill plans to infuse cash across the struggling economy. Senators will start considering the pandemic assistance plan next week.
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