Shock slump in British manufacturing sees sterling lose ground against euro

STERLING fell against the euro after British manufacturing production slumped unexpectedly in August.

The figures showed the output figures for British industry hit a 17-year low, raising fears about the ability of the economy to get back into growth.

By late afternoon the euro rose to 92.60p having been down at 91.80p.

Any increase in the exchange hurts Ireland’s prospects as about 20% of total goods and services are sold in Britain.

Simon Barry, chief economist, Ulster Bank Capital Markets, warned the weakness could persist for some time as investors look to future economic indicators to get a fix on where the British economy is heading.

On the basis of the figures it now looks as if Britain will not show an upturn as had been expected in the third quarter and it will take it until quarter four of 2009 before “we see quarter on quarter growth”, he said.

It’s the third time this year that sterling has come under pressure from the euro.

It happened in January and in March when concerns persisted that Britain would take longer than the eurozone area to return to economic growth.

On those occasions Mr Barry said that the euro never breached the 95p mark as had been feared at the time.

In recent months the currency has been buoyed by expectations that the UK was on its way out of recession and that it would get there before the euro area economies.

The latest production figures for August have “obviously” undermined that expectation, and sterling “will remain under pressure in the short term”, he said.

Looking further out though he has been saying for some time that sterling will start to gain ground on the euro.

Economic fundamentals in Britain are reasonably robust and that should be reflected in the exchange figures in the months ahead, provided that the production figures are not a harbinger of an economy which could be about to slip back into recession, he added.