Surprise decline in UK manufacturing sentiment confirms gradual moderation to continue through 2016

Data released on Tuesday showed that UK February headline manufacturing PMI surprised to the downside printing at 50.8, declining by 2.1pts, more than consensus' expectations. PMI is now 0.9pts below its 7-year average and 7.8pts lower than the last peak in August 2013. The January/February average relative to Q4 15 average registered 1.4pts lower, printing at 51.8.

Weak data confirms gradual moderation is still very much at play following January's bumper-start to the year. A strong GBP is probably still weighing on firms' ability to be competitive in the global market, according to the Markit Press Release. Data also highlighted that the operating environment has driven firms to become more price competitive in order to gain new businesses; this suggests a possible downside risk to the gradual pickup in CPI.

"We expect that sentiment will continue to moderate during 2016 in the run-up to the 23 June referendum as businesses become more cautious with regard to hiring, spending decisions and investment, only to be amplified by government policies on increased taxes (the apprenticeship levy), the increase in the national minimum wage, and the impending fiscal consolidation." said Barclays in a report.