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Sterling soars in wake of August's UK manufacturing bounce

Published 01/09/2016

Despite sterling's surge, the FTSE 100 index was down 35.54 points to 6,745.97
Despite sterling's surge, the FTSE 100 index was down 35.54 points to 6,745.97

Sterling has soared after UK manufacturing output rebounded in August, notching up its biggest monthly rise for a quarter of a century.

The pound surged 1.1% against the dollar following the update, breaking through the 1.32 mark to reach 1.329 US dollars. It was also 0.8% higher against the euro at 1.187 euro.

However, the FTSE 100 index was down 35.54 points to 6,745.97, as the manufacturing data knocked back hopes of more monetary stimulus from the Bank of England.

The London market was also dragged lower by a number of stocks going ex-dividend, including Hikma Pharmaceuticals and BHP Billiton, which fell 62p to 2078p and 14.8p to 975.1p respectively.

The Markit/CIPS UK Manufacturing purchasing managers' index (PMI) dominated the currency markets on a quiet day for company results.

Chris Saint, senior analyst at Hargreaves Lansdown, said the PMI suggests the Bank of England's decision to cut interest rates from 0.5% to 0.25% in August could prove to be premature.

The survey said manufacturers were taking "a business as usual" approach, as activity swung to a 10-month high in August following a slump in the immediate aftermath of the EU referendum result.

The closely-watched survey said output hit 53.3 last month, up from a revised reading of 48.3 in July and above economists' expectations of 49.

A reading above 50 indicates growth.

The PMI survey in July suggested the manufacturing sector was in the doldrums following Britain's vote to leave the European Union, with Brexit uncertainty hampering growth and forcing the industry to a 41-month low.

But manufacturing activity rallied in August, matching the highest month-on-month increase since the survey began nearly 25 years ago.

The slump in sterling to 31-year lows following the EU referendum result has made British products cheaper, boosting export orders to a 26-month high, with increased demand from the US, Europe, China, south-east Asia, the Middle East and Norway.

Across Europe, Germany's Dax closed down 0.5% and the Cac 40 in France edged up slightly.

The price of oil moved closer to its sharpest weekly loss since January, dropping 2.3% to 45.08 US dollars a barrel, as investors continue to fret over growing US crude stockpiles.

In UK stocks, recruitment firm Hays was languishing in the red after it said the British jobs market had "significantly" weakened around the time of the EU referendum, with the company flagging tough conditions in banking.

Hays said that while it is too early to tell what the longer term impact could be, uncertainty in the lead-up to and immediately after the vote "saw activity levels weaken significantly".

Experts have warned that a significant slice of London's banking industry could be shifted to Frankfurt or Paris following Britain's decision to quit the EU.

But Hays said pre-tax profits for the full year to June 30 rose 11% to £173 million, driven by strong performances in Asia and Europe. Net fees were up 6% to £810.3 million.

Shares were down 0.5p to 130.1p.

The biggest risers on the FTSE 100 Index were GKN up 14.9p to 325.9p, Berkeley Group, up 103p to 2775p, Taylor Wimpey up 4.3p to 165.6p, and 3I Group, up 16p to 630.5p.

The biggest fallers were Hikma Pharmaceuticals, down 62p to 2078p, Vodafone, down 6.5p to 223.4p, Glaxosmithkline, down 39.5p to 1599.5p, and Royal Dutch Shell B down 42p to 1900p.

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