U.K. manufacturing PMI index drops in February to four-month low, sentiment eases further

The IHS Markit/CIPS Manufacturing PMI for February showed that the sentiment in the manufacturing sector in the U.K. eased back further last month. The headline measure of the survey fell to a four-month low of 52 from January’s downwardly-revised 52.6 print. This is consistent with market expectations to register its second softest reading since July 2016.

That the headline measure did not decline more last month, was because of a further strong rise in companies’ input inventories and a rise in current output. Nevertheless, rather than being linked to expectations of stronger final demand, the rise in stocks of purchases mainly showed ongoing Brexit preparations by manufacturers and their clients, while the rebound in output was attributed to “clients bringing forward purchases ahead of Brexit and attempts to build up inventories”.

The sub-index indicating companies’ stocks of inputs rose to a record high. The stocks of finished goods sub-component also held at an elevated level, after similar outturns in the previous two months. With increased stocks of both inputs and outputs, companies are expected to feel better prepared for a wider range of Brexit scenarios, noted Lloyds Bank in a research report.

Forward-looking indicators continued to indicate a more-negative picture. The pace of new order flows decelerated for a second straight month which, at 50.3, pointed to little to no growth in new business. A big factor behind the fall in new orders showed softer export demand, especially from other European nations. This led to the new export orders component once again printing a sub-50 outturn – the fourth such in the past five months. Accordingly, companies reacted to this weaker backdrop by scaling back their hiring intentions for a second straight month, with the latest reading in line with a reduction in staffing levels throughout the sector in February.

“The ongoing impact of Brexit-related uncertainty continued to weigh on firms’ confidence over the future outlook, with the overall degree of long-term optimism in the UK manufacturing sector in February dropping to its lowest level since future output data were first collected”, said Lloyds Bank.

At 16:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -10.132, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 44.751 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex