Sterling bolstered as pace of manufacturing contraction slows

(Source: Yahoo! Finance)

The pound has risen against the dollar, buoyed by better than expected manufacturing purchasing manager's index data. Analysts think this could indicate a better GDP number in the second quarter than the first:

David Tinsley of BNP Paribas:

The UK manufacturing PMI for April is another useful shot in the arm to beat down expectations on the economy.

Overall this data continues a better tone to the UK data of late. As we remarked last week, there is little reason currently to see a GDP print in Q2 weaker than in Q1. While service sector activity might slow a little, a better result in manufacturing and in construction could pick up some of the slack.

James Knightley of ING:

This offers hope that the UK economy can expand again in 2Q13 after growing 0.3% in 1Q13 given that manufacturing is unlikely to be anywhere near as heavy a drag as it was in the first three months of the year. It also makes it less likely that the Bank of England will announce another round of QE next week, which will be supportive of sterling.

Rob Wood of Berenberg:

The good news today really is that the manufacturing contraction may not worsen in Q2: the PMI is a touch above the average of 49.0 in Q1. There will be some difficult times to come before Britain returns to sustainable growth.

Households are being heavily squeezed again, exports are struggling and companies are hardly likely to see that as a signal to ramp up investment. The first quarter could well turn out to be the bright spot of an otherwise dark year.

We remain bullish on the UK’s potential for productivity growth. It will be a rough ride, but there are chinks of light that mean a return to modest growth is likely towards the end of the year.