Market Overview

Some Encouraging Data for the UK's Economy


Amid the great abundance of negative news coming from the Eurozone, it now appears that some hope can be seen; that the recession could be lighter than expected.

The PMI (Purchasing Managers Index) in UK rose during December. The figure moved from 47.7 in November to 49.6, against forecasts that had it was declining to 47.3.

The UK's PMI is a monthly index of manufacturing activity in the United Kingdom and is considered an economic indicator. The PMI is based on the opinions of a panel of purchasing managers who forecast the coming months of the manufacturing industry. A higher PMI indicates that purchases of materials are increasing and that the economic outlook is positive. A lower PMI indicates sales of manufacturing materials is declining and economic outlook is negative. The PMI value ranges from 1 to 100, and it is believed that a PMI value of 50 or above could lead to future economic growth.

The index is still below 50, but more importantly, it has increased despite the current economic situation, providing a small ray of hope.

Beyond the index performance, manufacturing activity in England was stable during the month of December, after a few of months of decline.

The weakness in the intermediate goods production is compensated by the growth in the consumer and investment goods sector. The rate of decline in new orders has slowed down for the first time in six months but still continues to fall.

The most remarkable fact is that this increase in manufacturing output is supported by increasing foreign demand, especially from China, Eastern Europe and Germany. This is the first increase in new orders for exports in the last five months.

To confirm the encouraging news from abroad is the current trend of copper prices in the LME (London Metal Exchange). Copper is an industrial metal that has many uses (electronics, construction, microchips). Because of this, the trend of its price is considered an important gauge of the future for the manufacturing industry.

After hitting a low below 7,300 USD per ton in mid-December, we are seeing a steady increase in value, closing at 7,699 USD per ton yesterday.

Analysts believe that the increase is due to increasing demand from China for industrial metals. The increase in demand from China is a possible signal of an improvement in the pace of growth of the Chinese economy.

We will verify in the coming months if this sentiment will be confirmed or not, especially because concerns of a Eurozone recession are increasing, with bad economic outlooks for countries that export to China, Eastern Europe and Germany.

Data on increased demand from China, Eastern Europe and Germany could open up a new path for British economic recovery: pursuing exports to high-growth countries (particularly the BRICs: Brazil, Russia, India and China).

UK Trade & Investment, the British government agency that deals with international trade, has recently sent out signals to its own country to follow the forecasts of many economists about the biggest story of the twenty-first century: a shift in the economic center of gravity from the developed world to high growth economies.

One out of every three UK small and medium-sized business are planning to export their products to these countries over the next two years.

This is particularly important for an economy like Great Britain that in 2010 was the third largest exporter of commercial services and tenth of goods, according to the WTO.

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