Better news yesterday from the UK manufacturing sector

There was some better news yesterday from the UK manufacturing sector following the disapointing purchasing managers index (PMI) as manufacturing production in the UK expanded at a steady pace in July, up 0.3% on the month which lifted the annual rate by 4.9%.

The manufacturting news enabled Sterling to rise against the rest of the G10, also supported by a surprise 0.2% increase in the August Halifax house price index.

Unfortunately the positive sentiment wasn't maintained as the National Institute of Economic and Social Research (NIESR) estimate for GDP in the three months to August was +0.7%. Whilst the figure is positive, it was down from +1.3% in the three months to July and serves as another reminder that the UK economy is still in a fragile state.

In the US, the Federal Reserve's Beige Book was released yesterday which gives a summary of economic conditions in the eight federal reserve districts. The book revealed that economic activity continued to rise from mid-July through to the end of August however, there was "widespread signs of a deceleration". Manufacturing activity rose in half of the districts, consumer spending rose slightly on balance but concerns in the labour market remain subdued as there was "little to no increase" in wages.

Despite the earthquakes in New Zealand, the New Zealand dollar strengthened again overnight against Sterling after Sterling managed to reach £/NZD 2.15 yesterday.

The exchange rate is currently at £/NZD 2.1225 but a potential longer term negative for the Kiwi Dollar could be the cost of recovery from the magnitude 7.1 earthquake which struck the country's second biggest city Christchurch last Saturday. The NZ Treasury said the possible cost of the quake was likely to be around NZ$4 billion, double early estimates. The Reserve Bank of New Zealand is expected to hold its interest rates at 3% percent next week's after 0.25% rises in each of the June and July rate reviews.

The Bank of England's monetary policy decision dominates the data calendar today. The Bank is universally expected to leave quantitative easing and interest rates unchanged, but from the market's perspective, the bias seems to be shifting from one of raising interest rates to a neutral-easing one.