Pound soars after manufacturing sector grows for first time in a year

Pound soars after manufacturing sector grows for first time in a year
The pound leapt against world currencies after an unexpected surge from the manufacturing sector sparked speculation that the Bank of England will freeze its quantitative easing (QE) programme later this week.

By Edmund Conway, Economics Editor
Published: 6:46PM BST 03 Aug 2009

Sterling rose by 3½ cents against the dollar to $1.6928 after new survey data showed that manufacturing industry is growing again for the first time in more than a year. The Purchasing Manager's Index (PMI) for the sector, produced by Markit, rose from an upwardly-revised 47.4 points to 50.8 points in July. It is the first time it has surpassed the 50-level, which separates expansion from contraction, since March 2008.

The increase, which was far beyond what economists had anticipated, pushed sterling higher, along with gilt yields, since the PMI has often been a reliable signal for official measures of economic growth.


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The Bank will decide on Thursday whether to extend its QE programme to beyond £125bn, based on whether it judges it has pumped enough stimulus into the economy.

James Knightley, of ING, said that the increase was consistent with the economy growing by 1pc year-on-year in the second half of 2009. "This suggests that the UK economy is likely to record positive growth through the rest of this year and into next," he said. "However, ongoing deleveraging and rising unemployment (the PMI employment component still shows job losses) still suggests that the recovery will be fragile."

The positive economic news coincided with another strong day for markets, which were also boosted by news of strong investment banking profits from Barclays and HSBC. The FTSE 100 rose by 74.1 to 4682.46 points, having already achieved its biggest monthly gain in six years during July.

In a further sign of recovery, the TED spread, a measure of financial market stress which calculates the difference between banks' cost of borrowing and US Treasury interest rates, dropped beneath the 30 basis point level for the first time since before the onset of the financial crisis in mid-2007.


http://www.telegraph.co.uk/finance/currency/5967561/Pound-soars-after-manufacturing-sector-grows-for-first-time-in-a-year.html