The British pound edged up slightly against the US dollar in early European trading on Friday, reaching $1.2397, a 0.1% increase. However, this minor gain did not offset the currency’s overall downward trend, leaving it at its lowest point in almost nine months.
Table Content:
This week’s economic data paints a concerning picture for the UK economy. The British Retail Consortium reported a 2.2% year-on-year decline in footfall on UK high streets in December, capping off a “golden quarter” that saw a 2.5% drop in footfall compared to the same period last year. This weakened retail performance coincides with a sharp contraction in the manufacturing sector.
Manufacturing Sector Contracts Sharply
Data released on Thursday revealed that UK factory output plummeted at its fastest pace in 11 months. The S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) registered at 47.0 in December, down from 49.0 in November and marking its lowest reading since February 2023. A reading below 50 indicates contraction.
Rob Dobson, Director at S&P Global Market Intelligence, attributed the decline to a confluence of factors: a stagnating domestic economy, weak export sales, and anxieties surrounding future cost increases. He noted that these challenges have created a “downbeat backdrop” for manufacturers, pushing business sentiment to a two-year low. Dobson further suggested that the new government’s policies might be contributing to the decline in confidence and rising costs for UK factories and their clients.
Euro and Gold Remain Relatively Stable
While the pound struggled against the dollar, it remained largely unchanged against the euro, trading at €1.2063. Meanwhile, gold prices were subdued on Friday morning, retreating slightly after a strong start to the year. Spot gold dipped 0.2% to $2,652.31 per ounce, while gold futures remained flat at $2,666.90 per ounce.
The precious metal’s earlier gains were attributed to investor anticipation of President-elect Donald Trump’s return to the White House and the associated geopolitical uncertainties. Safe-haven demand, often seen during periods of economic and political instability, has traditionally bolstered gold prices.
Oil Prices Retreat After Early Gains
Oil prices also softened on Friday, following gains earlier in the week driven by positive economic data from China, the world’s largest oil importer. Brent crude futures declined 0.3% to $75.71 per barrel, while US West Texas Intermediate (WTI) crude also fell 0.3% to $72.92 per barrel.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, pointed out that the recent surge in oil prices was fueled by a larger-than-expected drawdown of US oil stocks and optimism surrounding potential economic stimulus in China. However, she cautioned that the outlook for the year remains uncertain, citing potential trade disruptions and fluctuating energy demand.
FTSE 100 Opens Flat
The FTSE 100 opened flat on Friday morning, trading at 8,257.63 points, reflecting the overall subdued sentiment in the market.
In conclusion, the UK economy faces headwinds from a weakening pound, contracting manufacturing sector, and uncertainties surrounding future economic policies. While gold and oil experienced minor pullbacks, their prices remain sensitive to global economic and political developments. The FTSE 100’s flat performance underscores the cautious mood prevailing in the market.
