UK exchange rate appreciation likely to shave of 0.2pp GDP growth this year

All in all, the PMI survey confirms the poor state of the UK's manufacturing sector, struggling with competitiveness issues and amplified by further sterling appreciation in recent weeks. 

According to the BoE's measure of the effective nominal exchange rate, sterling appreciated by another 0.5% in June, up 5.2% ytd. Since its cyclical low in February 2013, sterling has appreciated monthly by an annualised 6.5%, on average.

"All else equal, using the BoE's exchange rate multipliers, sterling appreciation to this point will weigh on 2015 growth by about 0.2pp and by 0.4% on inflation", says Barclays.

Service PMI to be released Friday will also likely confirm the divergence between the two sectors; if anything, we expect Service PMI to edge higher, boosted by the buoyant household sector.