UK factories suffer their weakest in Feb in almost three years as demand and exports slow

UK's headline manufacturing PMI for February dropped unexpectedly to 50.8, more than consensus' forecast. The print is currently 0.9 points lower than its seven-year average and 7.8 points lower than its previous peak in August 2013. The decline in UK's manufacturing sentiment confirms that gradual moderation still continues. According to companies, stronger pound is still weighing on their ability to be competitive in global market.

The Markit press release states that the operating environment has urged companies to be more price competitive in order to get new businesses. This implies a potential threat on the downside to the gradual acceleration of CPI. The moderation of the sentiment is likely to continue in 2016 in the run-up to the referendum of 23 June as businesses become wary regarding spending decisions, hiring and investment.

The output index declined to 53.2, the sharpest fall since July 2012. New orders fell 1.9 points to 50.2, while the subcomponent new export orders rose to 49.3. The employment index rose to 49.7, the second consecutive contraction since April 2013. Meanwhile, cost pressures continue to be subdued, with input and output prices lower than their seven year averages at 44 and 48.5 respectively.