The pound has fallen to its lowest level in four months today after disappointing figures from UK factories that have reduced the likelihood of an interest rate rise this month.
Sterling was down a cent against the dollar at $1.368, and about half a euro-cent against the euro at €1.1381.
Last week’s disappointing GDP figures showing that the economy grew by just 0.1 per cent in the first quarter had already sent the pound lower – it had been trading at nearly $1.40 before then.
Falling: The pound has fallen against both the dollar and the euro today
The latest report from Markit shows that manufacturers saw output slump to a 17-month low in April, with a slowdown in output, new orders, orders from abroad and employment growth.
Hamish Muress, currency analyst at OFX, said: ‘The torrid performance for the pound has continued, despite the new month, as UK manufacturing data sunk to a 17-month low.
‘Crucially, new order growth slowed to levels last seen in June 2017. Coupled with last week’s disappointing GDP figures, the pound has reached a four-month low against the US dollar and lost further ground against the euro as well.
‘Several analysts are now writing off any chance of an interest rate hike in May or November, and some banks are predicting the next hike may not come until 2019 and beyond.’
The pound could be in for more falls, Muress added, as construction and services sector figures are expected to be disappointing when they are released later this week.
‘Furthermore, the government lost a key vote in the Lords yesterday about the terms of the EU Withdrawal bill, meaning MPs may be able to force Theresa May to return to the negotiating table if they are unsatisfied, and this will likely mean more misery for the pound,’ he added.
The Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 53.9, lower than the 54.9 recorded in March and below economists’ expectations of 54.8. However, the sector is still growing as a reading above 50 indicates growth.
The poor reading in part reflected a weakening in the pace of expansion of new work from abroad, the report said, with growth of new export business hitting a 10-month low.
Activity was also particularly soft for manufacturers of consumer goods, suggesting that squeezed Britons are still reluctant to spend on durable, more expensive goods as rising inflation eats into their finances.
Howard Archer, chief economic advisor to the EY ITEM Club, said today’s manufacturing survey was ‘disappointing’ and added to concerns that the economy’s slowdown in the first quarter ‘was not just due to the severe weather’.
‘This will fuel caution at the Bank of England and makes a May interest rate hike [looks] increasingly unlikely,’ he added.
Rate hike? Fewer economists expect a hike this week, although one could come later this year
Some economists were expecting the Bank’s policymakers to hike interest rates by 0.25 per cent when they meet this week, bringing it to 0.75 per cent.
However, disappointing economic figures and persistent high level of debts have shifted expectations of a rate rise, with fewer economists expecting a hike this month.
Data by the Bank of England out today shows that consumer debt, albeit having fallen grown at the slowest pace in over two years, still remains stubbornly high.
Unsecured debt – which comprises personal loans, credit card and overdrafts – grew by 8.6 per cent in the year to March 2018, down from 9.4 percent in February.
This was the biggest slowdown since November 2015, but outstanding balances for consumer credit still stand at whopping £209.2billion.
‘A rate hike in May now seems highly improbable but the Bank of England still looks more likely than not to increase interest rates later this year,’ Archer said.