It says something when the pound rises not because economic performance is good, but because it’s not as bad as feared, doesn’t it? Nonetheless that’s the position we find ourselves in today, with the pound climbing half a cent against the US dollar, as UK manufacturing contracts less than expected in June.
Output in the UK factories declined just –2.9% the month before last, -1.2% less than the -4.1% market consensus. The reason for the sharp decline? The Jubilee, which gave everyone an extra day off. The reason it wasn’t as sharp as feared? Well, sometimes things just turn out better than we’d hoped.
But the best part of this data is not that UK manufacturing produced more than forecast. It’s that, as a result of this data, it’s quite possible the Office for National Statistics will upgrade the UK’s second quarter performance to –0.6% from –0.7%.
Given that the Jubilee is meant to have hit GDP to the tune of –0.5% in Q2, that therefore suggests the economy is flat-lining, rather than contracting is feared. As Chris Williamson, analyst at Markit, puts it this paints “a slightly more encouraging picture of an economy broadly stagnating.”
Now, you might argue that talk of a flat-lining economy instead of a shrinking one is just splitting hairs. Yet, it’s been enough to lift the pound this afternoon, and going forward, it should make it a lot easier for the UK economy to bounce back, rather than have to dig itself out of a hole.
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