Despite nudging above 1.39 against the dollar on Monday, the pound lacked momentum as the week commenced – with marketing sector data in the spotlight on both sides of the Atlantic.
Growth within UK factories continued to slow in July – although it was still one of the fastest paces on record – as staff shortages and supply chain issues caused by the Covid-19 pandemic restricted activity, a survey showed on Monday.
The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 60.4 from 63.9 the previous month. The index had soared to a record high of 65.6 in May as the manufacturing sector – which makes up around 10% of British economic output – was boosted by a spike in demand after lockdown restrictions were lifted.
Rob Dobson, a director at IHS Markit, said in an accompanying statement: “Amid growing indications that many supply chain disruptions and raw material shortages are unlikely to be fully resolved until 2022, the outlook remains one of constrained growth combined with high inflation for the foreseeable future,”
In the US, factory activity slowed markedly in July as supply shortages and bottlenecks continued to strangle the sector. The Institute for Supply Management’s (ISM) Manufacturing PMI fell to 59.5% last month. This represents its lowest level since January, although it remains above the 50% threshold that indicates growth. According to ISM survey chief Timothy Fiore, companies “continue to struggle to respond to strong demand due to difficulties in hiring and retaining” workers.
Earlier on Monday, a survey by IHS Markit/CIPS said operating conditions in US manufacturing were demonstrating the most substantial improvement on record, as growth was supported by robust expansions in output and new orders. The seasonally adjusted IHS Markit US Manufacturing PMI came in at 63.4 in July, up from 62.1 in June – and slightly higher than economists forecast of 63.1.
However, significant supply shortages and delays persisted, increasing input costs and hampering firms’ ability to process the surge in new work. Consequently, cost burdens rose at an unprecedented rate and backlogs continued to mount up.
Chris Williamson, Chief Business Economist at IHS Markit said: “July saw manufacturers and their suppliers once again struggle to meet booming demand, leading to a further record jump in both raw material and finished goods prices.”
The pound vs dollar rate continued to tread water this morning having slipped back to 1.38.
Factory Orders for June are slated for release from the US economy today.
All roads for investors in the pound lead to the August meeting of the Bank of England’s Monetary Policy Committee, whose members look set to raise forecasts for UK inflation on Thursday.