Sterling declines to a three-year low as May sets March split date
The pound hit a new three-year low against the euro yesterday as fears mounted of a so-called 'hard' Brexit and UK Prime MInister Theresa May set the deadline for kicking off exit negotiations.
But the weaker pound has given a boost to the UK's manufacturing sector, which last month recorded its strongest growth in more than two years.
Eurozone manufacturing also seems to have shrugged off the Brexit shock.
Rates of expansion and output among Britain's factories accelerated to rates rarely seen since the middle of 2014, according to the latest Purchasing Managers' Index for the sector, buoyed by the weakening of sterling.
Brexit became more of a reality for traders after Ms May's announcement that she would trigger Article 50 before the end of March next.
"May indicated that the UK would not be willing to compromise much on immigration, which may raise further fears over a 'hard' Brexit," said the Treasury team at specialist bank Investec in Dublin.
"Sterling has been on the back foot since markets opened in Asia overnight."
Ms May effectively intensified the Brexit debate yesterday after her announcement regarding Article 50 while also prioritising immigration restrictions over access to the Single Market.
Triggering Article 50 of the Lisbon Treaty would formally begin the two-year negotiation period allowing for Britain's exit from the European Union.
By mid-afternoon yesterday, €1 was worth just over 87 pence.
But while Ms May's speech had dented confidence in the UK currency, the FSTE 100 - the index of Britain's biggest companies - hit a 16-month high as investors were handed greater clarity over the exit process, but also rushed to bag a bargain.
Data on the manufacturing sector showed that the domestic market remained a prime driver of new business wins, while the weaker sterling exchange rate drove up new orders from abroad. At 55.4 in September, up from 53.4, the seasonally adjusted PMI rose to its highest level since June 2014.
And the rebound in the sector since the vote has been strong enough to make the average for the third quarter the best so far this year.
Rob Dobson, senior economist at IHS Markit, which compiles the survey, said the rebound over the past two months has been "encouragingly strong".
"The weak sterling exchange rate remained the prime growth engine, driving higher new orders from Asia, Europe, the USA and a number of emerging markets," Mr Dobson said.
Manufacturing in the Eurozone picked up last month as demand rose both from within and outside the bloc. But it was an uneven picture across the region, with the bulk of the growth centred on Germany, while it was much weaker in Spain, Italy, and here in Ireland.
Chris Williamson, economist at IHS Markit, said the key message from the September survey is that the Eurozone's manufacturing economy continues to expand at a solid pace.
But he warned about its uneven nature.