What's going on?
Industrial activity in the UK (e.g. manufacturing) experienced its biggest monthly fall in four years between September and October. It could be a sign that all is not well with the British economy in the wake of the Brexit vote.
What does this mean?
While industrial activity only makes up about 15% of the UK economy, it’s still important, especially to many regions outside of London. A fall in industrial activity can also impact the services sector (which dominates the UK economy) by hurting the industries that serve manufacturers (for example, less demand for accountants from manufacturing firms). This is only one month of data – so it could be an outlier – but it also could show that the relatively weak pound isn’t quite the boost to manufacturing some hoped it would be (see why below).
Why should I care?
The bigger picture: A weaker currency can also increase (some) costs, even for exporters.
The pound has fallen 12% versus the dollar and 7% versus the euro since the Brexit vote. This should make British-made products cheaper for international buyers. But British companies also often need to import many of the components of their products (e.g. steel bought on the global market). Those higher input costs dilute the effect of the cheaper currency.
For markets: The weak data helped push the pound down from a recent high.
Recently, UK economic data has been relatively good, despite the Brexit vote – and the pound has strengthened in recent weeks from its late October low. Wednesday’s weak data caused a moderate turnaround; one that will likely accelerate if more poor data comes to light (click here for more info on how a weaker economy typically leads to a weaker currency).