Pound boosted as UK manufacturing 'flourishes'

Car production in the UK

The pound has hit its highest level against the US dollar for nearly six years after a survey suggested the UK's manufacturing sector grew at its fastest pace for seven months in June.

The latest Markit/CIPS purchasing managers' index (PMI) for the sector was 57.5, up from 57.0 in May. A reading above 50 indicates expansion.

Survey compiler Markit said the sector continued to "flourish".

The pound rose to $1.7145 on growing expectations of a rate rise this year.

The survey results add to signs that the UK's economic recovery is becoming more balanced.

Pound Sterling v US Dollar

Last Updated at 29 Jul 2014, 23:26 ET *Chart shows local time GBP:USD intraday chart
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The latest official estimate of GDP figures, released on Friday, confirmed that the economy grew by 0.8% in the first quarter of the year and also revealed the fastest expansion in business investment in two years.

The PMI survey found that the manufacturing sector created jobs at the strongest pace for more than three years and new orders grew at the fastest pace since November last year.

Strong quarter

Although manufacturing output saw a slight slowdown in the rate of growth last month, Markit said output had now increased for 16 months in a row.

"UK manufacturing continued to flourish in June, rounding off one of the best quarters for the sector over the past two decades," said Rob Dobson, senior economist at Markit.

"With levels of production surging higher, and order books swollen by a further upswing in demand from both domestic and overseas clients, job creation accelerated to its highest for over three years."

The upbeat data boosted the pound, as markets felt it was more likely that the Bank of England would raise UK interest rates before the end of the year.

David Tinsley, UK economist at BNP Paribas, said: "Manufacturing is growing strongly, and work flows suggest this has legs.

"This supports our view that UK GDP accelerated in Q2. As this news flow is absorbed further, rate hike expectations for the first hike in Q4 this year should harden."

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