Pound drops sharply against dollar and euro after weak economic data

Analysts said the surprisingly soft data painted a 'bleak picture' for the pound

The pound dropped sharply against both the dollar and the euro on Monday morning, after a raft of disappointing economic data was released, including figures showing manufacturing output at a five year low.

Sterling was down 0.35 per cent against the dollar at $1.3368, and fell 0.5 per cent against the euro to hit €1.1343.

The pound lost value after the Office for National Statistics reported UK manufacturing had its worst month in more than five years in April, declining by 1.4 per cent and widely missing expectations of a 0.3 per cent expansion.

Construction output was also revealed to be weaker than expected, with growth of just 0.5 per cent, while the goods trade deficit widened to £14.03bn, in spite of analysts' expectations of £11.35bn.

Nish Parekh, senior FX trader at Silicon Valley Bank, said: “The surprise soft reading for both the manufacturing and construction sector paints a bleak picture for the UK economy and sterling in general as benign growth will force the Bank of England to review their projections and further weigh on decision to tighten monetary policy.”

Meanwhile, UK employment data and the latest inflation figures will be released later this week. While positive readings could give sterling a boost, external factors may hold it back.

Miles Eakers, chief market analyst at Centtrip, said: “Positive signals from the labour market tomorrow and above-expectation inflation later this week could provide some relief for the pound, but with the Fed and ECB seemingly in tightening mode and the BoE not following suit, sterling is vulnerable to further weakness. Brexit-related risks are also still prominent, especially in light of the upcoming crucial vote on the EU Withdrawal Bill later this week.

Naeem Aslam, analyst at Think Markets, said: "The UK’s manufacturing production data was rotten and it casts doubts about the UK’s economic health. (These) kind of numbers would make the Bank of England question their current strategy and this is the key reason that we have seen a massive sell-off for sterling.”