While parts of the UK, including London, were plunged into Tier 3 lockdown as of this morning, there was some good news to be had. The latest manufacturing and services PMI releases were seen coming in well above expectations, highlighting the ongoing recovery underway, despite the continued social restrictions and the disruption caused by them.

UK Manufacturing Hits 3 Year High

The UK manufacturing PMI had a particularly strong showing over December, rising to 57.3 from the prior month’s 55.6, beating expectations of a 55.9 reading. The December print now marks the fastest monthly expansion in manufacturing since November 2017. Looking at the sub-sections of the index the new orders component was seen rising at its fastest pace since August, boosted by an isolated rise in purchases ahead of the Brexit deadline at year end. Furthermore, job losses were seen slowing over the month along with a reduction in supplier lead time which also helped lift the December reading.

UK Services Stabilises Further

The UK services PMI was also seen rising over the month, though remained in contractionary territory at 49.9, just shy of hitting the neutral 50 mark. This was a firm rise from the prior month’s 47.6 reading though was short of market expectations for a 50.5 reading. The softness was attributed mainly to the impact of social restrictions on the hospitality sector as well as leisure and travel businesses. Looking further into the breakdown of the data, new orders were seen falling for a third straight month. However, job losses slowed to their weakest pace since the pandemic began in March.

Dovish BOE Expectations

While the data was broadly positive, the near-term prospects for the UK appear skewed to the downside given the fresh Tier 3 lockdowns in place across much of the country and the risks of a no-deal Brexit. With this in mind, the market is now bracing for the December BOE meeting tomorrow. With Brexit talks ongoing the likelihood is that the BOE holds monetary policy at current levels. However, guidance is likely to be firmly bearish with the bank set to reassure markets that it stands ready to support the economy further in the event of a no-deal Brexit.

Technical Views

GBPUSD

The rally in GBPUSD off the 1.3170 low has seen price trading back up to challenge the 1.3520 level. This is a major resistance level in cable and a break higher here will open the way for a move up towards the 1.3712 level and the top of the bullish channel.

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