Weak output data weighs on UK economy ahead of Bank of England announcement

Enrique Díaz-Álvarez10/Sep/2015Currency Updates


Despite some very weak data released early yesterday morning, the Pound recovered as the day progressed to finish the session only 0.1% lower versus both the US Dollar the single currency.

There were fresh concerns raised over the health of the UK manufacturing sector yesterday. Manufacturing output declined by 0.5% on an annualised basis and 0.8% month-on-month in July according to the ONS. This is well below forecast and the first time manufacturing output has decreased on a year previous since September 2013. A strong Pound and uncertainties in the global economy, namely recent financial market turmoil in China, were the primary reasons for yesterday’s dismal reading.

Similarly industrial production surprised on the downside, falling by 0.4% for the month, its second consecutive month of declines. Industrial and manufacturing output now remain 9.3% and 5.2% below their pre-crisis levels. Such weak data was reflected in NIESR’s monthly GDP estimate, which registered just 0.5% in the three months to August.

Separate data yesterday showed that the trade deficit in the UK widened in July. The deficit increase to £3.2 billion following a decline in goods exported, primarily driven by a fall in the export of chemicals and manufactured goods.

Today, the Bank of England will steal focus in the global currency markets. The central bank will be releasing its monetary policy minutes following its two day meeting, along with its interest rate decision and vote breakdown. The vote is expected to remain 8-1 in favour of no hike, with policymakers touted to err slightly on the dovish side given the recent manufacturing slowdown.


An initial rally in the Euro yesterday morning was wiped out in the afternoon, with investor’s sentiment toward safe-havens waning following a rebound in global stock prices. The Euro ended the day 0.1% lower versus the US Dollar.

Economic indicator data was at a premium yesterday; however, there were some encouraging words from German Chancellor Angela Merkel. Speaking in Berlin, Merkel claimed that the Eurozone economy is in much better shape than a year previous and that reform efforts in countries such as Spain and Ireland have paid off, with these countries currently experiencing above average growth levels.

Meanwhile, the moderate economic recovery in Greece continued. The pace of the slowdown in industrial output moderated, while the rate of deflation was much less severe in August than a month previous.

Another day with little data in the Eurozone today means that all eyes will turn to the Bank of England in the UK.


A decline in the Euro and the Yen caused by a stabilisation in stock prices, contributed to the US Dollar index increasing by 0.1% yesterday, despite little in the way of major data out of the US.

Despite a lack of major announcements, there are fresh signs of continued improvement in the labour market, with the latest JOLTS job openings exceeding expectations. The number of job openings rose by 5.75 million in July, much higher than the 5.3 million forecast and the highest since the series began in December 2000. The large increase is partly attributed to increases in healthcare, food services and retail sectors, and provides another signal to the Federal Reserve that current labour market conditions warrant an interest rate hike this month.

Elsewhere, the Commerce Department’s quarterly services survey suggested that consumption increased at a faster than anticipated rate in the second quarter, opening the door to a further upward revision of the second quarter growth figure.

Jobless claims and wholesale inventories data out in the US this afternoon could cause moderate Dollar volatility although, as with the Euro, much of the focus will be on events in the UK and elsewhere.

Rest of the world

The Canadian Dollar rallied yesterday afternoon after the Bank of Canada hinted that the economy is recovering from the recent collapse in oil prices.

Meanwhile, the Japanese Yen fell by more than one percent after demand for the safe-haven currency decreased following a further stabilisation in stock prices. The Japanese Nikkei index jumped almost 8% after PM Shinzo Abe raised hopes of more fiscal stimulus.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.