THE TAKEAWAY: UK PMI for Manufacturing drops to 50.8 in January, lower than expected -> Manufacturing sector only accounts for 10% of the economy -> Sterling pushes lower

UK manufacturing activity declined from a 15-month high according to Markit’s Purchasing Managers’ Index. The PMI for manufacturing in January was reported at 50.8, disappointing expectations for 51.0 and lower than December’s revised 51.2 PMI. However, the PMI marked the second quarter of improved activity, as any PMI above 50.0 indicates an improvement in activity.

Despite the measured decline in manufacturing activity, manufacturing output expanded at the fastest pace since September 2011. The increase in production was mainly fueled by the consumer goods sector.

The UK economy returned to decline in Q4, as the GDP dropped 0.3%. Pound investors are looking for signs of economic growth to avoid a technical triple dip recession in the UK. However, Markit Senior Economist Rob Dobson said, “with manufacturing only accounting foraround 10% of the economy, the survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector, which contracted at the fastest rate for twoyears in December.”

The Pound declined by 30 points against the US Dollar following the disappointing PMI. GBP/USD erased some of the gains seen over the past few days in today’s trading in Forex markets. Support may be provided by a previous resistance line around 1.5750, and resistance could be seen by a 200-day moving average around 1.5890.

GBPUSD Daily: February 1, 2013

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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