Summary:
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UK PMI saw an unexpected rise in December, November’s data was revised up
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A build-up in inventories and new orders among reasons behind the better data
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GBP trades slightly lower, a key technical resistance ahead
PMI jumps but outlook still clouded
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Open account Try demo Download mobile app Download mobile appUK manufacturing PMI unexpectedly rose in December as firms decided to build up inventories and boost new orders in preparation for a potentially disruptive Brexit. A response in the GBP has been subdued as the pound is struggling with the important technical resistance.
UK PMI saw an unexpected jump in December as firms were preparing for a potentially disruptive Brexit. Source: Macrobond, XTB Research
The gauge for UK manufacturing increased to 54.2 from 53.6 (the upward revision from 53.1) last month easily beating the market consensus of 52.5. The data shows that the UK manufacturing sector has been resilient to the widespread slowdown in other European countries. However, the last month’s rise seems to have weak foundations as it was steered predominantly by firms’ fears over a potentially disruptive Brexit. Surveyed companies cited this factor as the prime reason why they decided to build up inventories and boost new orders. Therefore, we reckon that this increase ought to be short-lived and might be reversed during first months of 2019. Besides new orders and inventory components we had a decrease in terms of output to the weakest levels in the last two and a half years. Although manufacturers’ confidence improved modestly in December, it remained only slightly above the 27-month low registered in November. There is no doubt that the Brexit topic should prevail in the weeks to come as PM Theresa May is expected to bring her plan to the Parliament to be voted again later this month. In her New Year message she said that "The Brexit deal I have negotiated delivers on the vote of the British people and in the next few weeks MPs will have an important decision to make. If Parliament backs a deal, Britain can turn a corner."
Technical view
The GBPUSD has failed to move through the upper bound of the bearish channel, hence a comeback to lower levels could be on the cards. If so, one may count on a move even toward 1.21 but a lot will depend on incoming Brexit developments as well as the US dollar’s performance. Source: xStation5
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