Rishi Sunak, set out on Monday that the country is heading in the right direction as it enters an anticipated election year. He has placed the commitment to tax cuts at the forefront of his efforts to rejuvenate the Conservative Party's prospects, drawing inspiration from John Major's unexpected 1992 election victory. Sunak aims to convey that, similar to Major's message, the economy is rebounding, and voters would be taking a risk by aligning with the Labour party.
Despite challenges such as high energy costs, worker shortages, and political instability hindering progress, major manufacturers in the UK believe the country is enhancing its competitiveness as a global manufacturing hub. Make UK, the manufacturing trade body, and PricewaterhouseCoopers, the accountancy firm, reported that industry leaders are gaining confidence in the sector's prospects. However, they acknowledged the existence of persistent economic challenges.
The private sector companies in Britain concluded the previous year on a positive note. The final composite Purchasing Managers' Index (PMI), encompassing both manufacturing and services, increased to 52.1 in December, surpassing November's 50.7. This performance outpaced other major economies worldwide, with a reading above 50 indicating growth, and puts a positive on the UK potentially avoiding recession.
The eurozone, on the other hand, may be heading towards a recession as business activity continued to contract at the end of 2023. The bloc's PMI for December was revised up to match November's 47.6, but it remained below the critical 50-mark for the seventh consecutive month. In the United States, contrary to expectations, 216,000 jobs were added last month, leading investors to revise their predictions on interest rate cuts. This positive economic data coincided with the eurozone reporting its first increase in inflation in eight months.
The US exceeded expectations by gaining 216,000 jobs in the previous month, concluding a week marked by robust economic data that prompted investors to reduce their expectations for interest rate cuts. The non-farm payrolls report on Friday surpassed both predictions and the November total of 173,000 jobs. Interestingly, this occurred on the day when the eurozone announced its first increase in inflation in eight months.
In the currency markets, GBP/USD saw an increase as the new week began with a risk-on market session. Broad-market risk appetite in the US session lowered the USD and provided some relief to other major currencies. The pound surpassed the 1.2750 level against the Greenback. However, the lack of significant economic data in the UK this week leaves the Cable susceptible to broader market trends. Investors are gearing up for the release of December's US Consumer Price Index (CPI) on Thursday, which will likely influence market dynamics.
The pound also made some gains against the Euro after the PMI data. GBPEUR was at 1.1550 mid last week, but is now hovering around 1.1640. EURUSD currently resides at1.0940.
