"We continue to expect manufactures to struggle to capitalize on the weak pound in the near term, given the usual delays involved in finding new business, renegotiating contracts and investing in extra capacity".
- Samuel Tombs, Pantheon Macroeconomics
Manufacturing activity in the United Kingdom remained strong but grew at a slightly slower pace last month, a private survey revealed on Tuesday. Markit/CIPS said its Purchasing Managers' Index declined to 54.3 in October, compared to the preceding month's upwardly revised 55.5 points, the highest reading in more than two years. Meanwhile, market analysts anticipated a slighter drop to 54.6 during the reported period. The British economy has performed better than expected so far despite the country's decision to leave the European Union, showing no signs of a widely expected immediate slowdown. Therefore, the Bank of England is unlikely to cut interest rates at its November meeting on Thursday. The October PMI was mainly supported by a combination of higher exports, which were boosted by the fall in the British Pound, and strong domestic demand. However, export growth during the reported month was weaker than in September. Furthermore, Markit said that inflationary pressures caused by the weaker Pound were starting to be felt by companies, as import prices grew at their fastest pace in over 25 years in October. The Central bank is widely expected to revise upwards its forecast for inflation amid the drop in the Sterling.
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