Pound sterling tumbles against dollar and euro as manufacturing growth slips to 25-month low

UK currency down 0.7% against dollar and 0.8% against euro

The pound fell by more than a cent against the dollar after new data indicated that UK manufacturing growth had slumped to its slowest in more than two years.

The manufacturing purchasing managers’ index (PMI) slipped to 52.8 in August from 53.8 in July and significantly lower than the 54 predicted by economists. A reading above 50 indicates growth.

Manufacturers should have received a boost from sterling’s weakness since the Brexit vote because it makes their products cheaper for customers abroad.

But the PMI survey indicates that any uplift in exports has been shortlived. Foreign demand fell for the first time since April 2016.

Continued uncertainty about the future of the UK economy and heightened fears that the country could crash out of the EU with no trade deal in March weighed on businesses last month. Signs that the world economy is beginning to slow down may also have dampened demand.

Optimism among manufacturing firms slumped to a 22-month low while the job creation is now “near stagnation”, the new data showed.

Rob Dobson, director at IHS Markit, which compiles the survey, said the performance of the UK manufacturing sector looked “increasingly lacklustre” in August.

He added: “Based on its historical relationship with official ONS data, the latest PMI report is broadly consistent with zero growth in manufacturing production, meaning the sector will likely fail to provide any support to the wider UK economy in the third quarter.”

Less than half of firms now expect output to be higher in one year’s time, according to the survey.

Sterling slipped 0.7 per cent against the dollar to $1.286 on Monday and was down 0.8 per cent against the euro to €1.10.

David Lowe, head of international trade at law firm Gowling WLG said the fall was likely due to a number of issues.

“The drop in the pound this morning might be as a result of the issue of the statistics for UK manufacturing, but they will also be factoring in announcements over the weekend from May, Barnier and Johnson, and the growing concern over recent months about the risk of a hard or crash Brexit,” he said.

“The markets are betting the outcome of Brexit negotiations will be that the UK will be poorer as a result.“

The EU’s chief Brexit negotiator, Michel Barnier, said on Sunday that he was “strongly” opposed to key elements of Theresa May’s latest Brexit trade deal proposals.

Boris Johnson also laid into the prime minister’s so-called Chequers plan for Brexit, which he said would hand victory to the EU “with the UK lying flat on the canvas with 12 stars circling symbolically over our semi-conscious head”.

Downing Street played down the importance of Mr Johnson’s comments, which were made in his column in the Daily Telegraph.

“There are no new ideas in this article to respond to,” Ms May’s spokesperson said.