The pound saw sharp losses today, (7th December) reversing some of the recent gains, on news that UK industrial production contracted in October.UK industrial production contracted by 1.3% in October on the month before, and by 1.1% year on year.
Manufacturing contracted 0.9% month on month and by 0.4% year on year.
This may be as bad as things will get. Surveys such as the purchasing managers indexes suggest that manufacturing is in recovery mode, helped by the falls in sterling seen since Brexit, while maintenance of the Buzzard oil field, which is due to end soon, may have had an adverse effect on wider industrial production.
Even so, sterling fell some 0.5%, after hitting a two-month high earlier in the week.
Paresh Davdra, CEO and co-founder of RationalFX, suggested that renewed optimism in the Euro due to rumours of a rescue package for the Italian bank Monte dei Paschi, was behind the fall in sterling.
"The weaker pound has had the effect of boosting the FTSE 100 however, with exporters benefiting," he said.
Mr Davdra added that "another trigger of the pound’s decline is the UK’s disappointing manufacturing figure. The figure represents the UK’s biggest fall in output since 2012 which was partly due to the temporary shutdown of the Buzzard oil field in the North sea. Not only this, but the pound has also likely been affected by recent Brexit news, with Theresa May under increasing pressure to reveal the government’s strategy, and reiterating the plan to initiate Article 50 by the end of March. This highlights the way in which the pound remains under pressure from political events in the UK and Europe, meaning the coming weeks will likely see a lot of movement for sterling. The biggest test for the pound still remains in 2017 however, as analysts attempt to predict the risk to the euro posed by Marine Le Pen’s bid for the French presidency. This uncertainty in the euro will undoubtedly strengthen the pound as has been shown in recent days, but whether or not sterling will truly be able take advantage of weakness in the shared currency rests on the nature of the Brexit that will be triggered.”
