The first major economic release of the year from the UK has come in strongly, showing a substantially higher than expected expansion in the manufacturing sector. The FTSE 100 has risen by more than 30 points in the first trading session of the year and in doing so the market has posted another record intraday high. The pound is also gaining on the upbeat print, appreciating against all its major peers apart from the Aussie.
Good start to busy week of UK economic releases
A print of 56.1 for the UK manufacturing PMI in December represents the highest print in two and a half years and suggests the economy is on a firm footing as we look forward to 2017. Both domestic and overseas demand improved to contribute to this stellar reading which was far better than expected with a fall to 53.0 forecast after 53.6 previously. The rates of expansion seen in output and new orders were among the fastest seen during the survey’s 25-year history and whilst the fall in the pound can be held slightly responsible for increased foreign demand, the strong contribution from the domestic market shows there is clearly more at play here than a simple currency boost due to the weak exchange rate. The equivalent readings for construction and services are due out on Wednesday and Thursday respectively, and if we get more strength in these - in particular the latter, which represents the biggest sector of the economy - then we could expect a stronger 2016 Q4 GDP print than previous thought. Predictions for a recession in the second half of last year were widespread following the Brexit vote, but this latest data suggests that these were wide of the mark, with the economy now expected to not only have managed to avoid a contraction but actually posted strong growth in the subsequent months.
Bright start to 2017 for stocks, but retailers lag
The majority of stocks on the leading UK benchmark have begun the New Year on the front foot with InterContinental Hotels Group leading the way and rising by 3% on the day. Banks are continuing their decent run of late with Barclays (LON:BARC), Lloyds Banking Group (LON:LLOY) and RBS (LON:RBS) all firmly in the green at the time of writing. Languishing at the foot of the index is Next, with the retailer falling over 4% after poor figures for the UK high street were released today. Footfall fell nearly 13% nationwide while in shopping centres it slumped by a massive 50% as a combination of poor weather, an early December spending spree and bank holiday trading hours weighed on consumer spending.