Good morning,

UK PMI shows slowing growth

A day of looks at the world’s manufacturing sector depressingly confirmed a lot of the sentiment towards the UK economy versus some of its closest trading partners; strong growth in France, Germany, the wider Eurozone and the US whilst the UK measure fell to the lowest since March. The UK’s manufacturing sector is still growing of course but the pressures that have become almost de rigeur in UK economic data are still very much present.

New business growth has slowed which is limiting the increase in new employment in the sector, confidence has slipped to a 7 month low and while price pressures are easing, supply lines are becoming stretched and are therefore slowing, extending the time taken on projects. Overall the UK manufacturing sector is an engine that is only able to fire on a few of its cylinders whilst the landscape on investment and trade remains so occluded by Brexit and the inherent uncertainty of our negotiations.

Is inflation already starting to top out?

The one bright spot within the numbers was that easing of pricing pressures and therefore an increasing glimmer that the pressure on the Bank of England from inflation will dissipate soon. The currency effect following Brexit will likely only last until the end of the year – on the basis that we do not see another drastic fall in the value of the pound from current levels – and so if the manufacturing sector is hinting that the price pressures are already softening, that will be music to Threadneedle St’s ears.

We’ve heard from some members of the Bank of England who are considering rate hikes in the past few weeks so yesterday it was time to hear from one who most definitely doesn’t. Gertjan Vlieghe told The Independent that he thinks “a premature hike would be a bigger mistake than one that turns out to be slightly late”. Vlieghe is known to be the most dovish in a room that leans towards dovishness so these comments are entirely unsurprising but confirmation of slowing price pressures in today’s construction or tomorrow’s services PMIs may mark them out as being very prescient.

The construction PMI is due at 09.30

North Korea tests missile, rattles Asian currencies

During what is typically a quieter trading day courtesy of the Independence Day holiday in the United States most focus will be on Asia following news this morning that North Korea has successfully tested an Intercontinental Ballistic Missile, capable of hitting Japan and according to some estimates, parts of the United States. Yen is a little stronger on haven flows with other Asian currencies slightly weaker.

What will happen next will depend on the resident of 1600 Pennsylvania Avenue, also known as the White House.

The data calendar is quiet today.

Have a great day

Jeremy Cook, Chief Economist