Sterling plummeted against the euro and the dollar in response to weak UK manufacturing data as economists warned “there is no clarity whatsoever” surround Brexit.
Markets panicked as figures showed output from the UK manufacturing sector sank to a seven-year low in August, sending the pound down against major currencies.
Sterling sank 0.584 per cent against the dollar to hit 1.209 while against the euro sterling dropped 0.4 per cent to hit 1.101.
Think Markets’ chief analyst, Naeem Aslam, warned the manufacturing data “was immensely feeble”.
“We are expecting sterling to fall below 1.20 by the end of this week, because there is no clarity whatsoever when it comes to Brexit,” Aslam added.
“The drop in the UK’s manufacturing sector was at the fastest pace since 2012 and this is going to only become worse if lawmakers don’t get their act together.”
Economists blamed the poor UK manufacturing PMI data on a mix of concerns surrounding Brexit and a wider economic slowdown.
The Eurozone also posted weak manufacturing PMI today, showing a contraction similar to the UK’s as the bloc failed to recover from a disastrous July.
But analysts warned that the British pound could fall further, with a fall to levels of 1.2060 – August’s low – possible in the near term.
“The manufacturing PMI data is simply shocking,” said Neil Wilson, Markets.com’s chief analyst.
“It’s wrong to pin this all on Brexit. As the report authors make clear, the global economic slowdown is the primary cause of the decline, albeit there was some impact from supply chain reshoring as businesses seek to mitigate the impact of a no-deal Brexit,” Wilson said.
However, Wilson warned the worst may yet be to come.
“The data for the UK economy may well now get worse before it gets better. We need to assess the services PMI on Wednesday for more clues about whether Q3 could herald a contraction,” he explained.
“It also makes the next move for the Bank of England down, not up. Ultimately though the economic data this week will play second fiddle to what’s going on in Westminster.”
FTSE 100 climbs one per cent on sterling woes
Sterling’s fresh troubles – after diving to around $1.218 last week as the Prime Minister moved to suspend parliament – boosted the FTSE 100.
London’s stock market enjoyed a 75-point climb to 7,281.93 in morning trading as the weak pound proved a boon for exporters.
That was equal to a rise of 1.05 per cent for the day. Astrazeneca led the FTSE 100 risers with a 2.95 per cent rise, followed by Experian’s 2.15 per cent climb.
Tesco, Diageo and British American Tobacco (BAT) also performed strongly.
Top 5 FTSE 100 risers
- Astrazeneca +2.95 per cent to 7,534p
- Experian +2.15 per cent to 2,572p
- Tesco +2.1 per cent to 223.8p
- Diageo +1.96 per cent to 3,572p
- BAT +1.81 per cent to 2,932p
Top 5 FTSE 100 fallers
- Antofagasta -1.66 per cent to 851.6p
- NMC Health -1.4 per cent to 2,467p
- Smurfit Kappa -0.6 per cent to 2,520[p
- WPP -0.6 per cent to 964.2p
- Just Eat -0.6 per cent to 781p