The pound slipped to 1.37 against the dollar on Thursday for the first time in ten days – extending a run of losses this week. But it was not all bad news. According to IHS Markit, factories in Britain continued their recovery last month and ramped up hiring. However, they also contended with record inflation pressures due to Covid-fuelled supply chain problems.
The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped to 63.9 from a record high of 65.6 in May – down slightly from a preliminary “flash” reading of 64.2 for June. Expansion in output, new orders and employment maintained an impressive pace – testing the highest levels in the survey’s near 30-year history after lockdown restrictions were eased globally.
Speaking at an annual Mansion House event attended by financial services sector leaders on Thursday, Bank of England (BoE) Governor Andrew Bailey stressed the importance of remaining calm over a rise in inflation – one that is likely to prove temporary during Britain’s economic recovery from the pandemic.
Mr Bailey echoed the rhetoric from the BoE’s June policy meeting by saying: “It is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions,”
Investors await US jobs data
The dollar remained robust on Thursday as investors looked ahead to the much-anticipated US Nonfarm Payrolls report on Friday for signs of whether the Federal Reserve will taper monetary stimulus sooner rather than later. Increased vaccinations have shielded the US economic recovery from the pandemic, raising expectations that the central bank could start reducing its ultra-easy policy – providing a boost for the dollar.
Initial filings for unemployment insurance fell sharply to 364,000 during the week ended 26 June – a fresh pandemic low – as layoffs continue to subside. Initial jobless claims during the period dropped by a seasonally adjusted 51,000 from the previous week’s revised total of 415,000.
US factory output and prices maintained a brisk pace of growth in May, amid significant supply chain issues. The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index slipped from 61.2 for May to 60.6 last month – falling short of economists’ expectations of 61.0.
A slew of notable data is scheduled for release from the US economy today, but one stands out from the crowd: the Nonfarm Payrolls report for June from the US Bureau of Labor Statistics. This influential economic indicator is pencilled in to show a gain of 706,000 new jobs against May’s 559,000, and a decrease in the unemployment rate to 5.6%.