The pound has hit its highest level in nearly six years and the FTSE 100 has jumped after fresh data showed UK manufacturing expanding at its fastest rate in seven months.
Sterling hit $1.7142 against the dollar, its highest level since October 2008, after the purchasing managers’ index for UK manufacturing came in at 57.5 in June, a surprise jump from 57 in May. Any reading above 50 indicates expansion. The FTSE 100 meanwhile added 56 points, or 0.8%, to 6,799 as a rally from the index gathered strength throughout the day. Bullishness from US investors, who pushed the S&P 500 to a new all-time high, added to the optimism.
The Bank of England is thought to be edging towards a 2015 interest rate rise only if UK growth starts to cool in the second half of the year. Today’s UK manufacturing figures are likely to add more weight to arguments for a hike this year.
‘With governor Mark Carney stressing that the strength of data will drive when the Bank of England will first edge up interest rates, the robust June manufacturing PMI will likely be seen as supportive to a move in late 2014 rather than early 2015,’ said Howard Archer, chief economist at IHS Global Insight.
The pound’s rise has also been helped by weakness in the dollar, which has contributed towards a rise in the gold price to a three-month high of $1,332.10 an ounce, later retreating to $1,327.80.
Worsening violence in Iraq and escalating tensions between Russia and the Ukraine have also spurred flight to the precious metal.Iraqi troops are attempting to dislodge an al Qaeda splinter group in Tikrit, while Ukrainian president Petro Poroshenko has declared government forces will renew offensive operations against pro-Russian rebels after a ceasefire expired.
Positive data from China was another contributor to the FTSE 100's rise. Miners were among the biggest gainers after new data from top metals consumer China showed factory activity hit multi-month highs in June. Among the top risers were:
- Rio Tinto (RIO) up 96p, or 3.1%, at £32.04
- Randgold Resources (RRS) up 115p, or 2.4%, at £49.88
- BHP Billiton (BLT) up 53.5p, or 2.8% at £19.42
- Anglo American (AAL) up 59.5p, or 4.1%, at £14.90
- Fresnillo (FRES) up 24.5p, or 2.8%, at 896.5p
Tesco (TSCO) mounted a small recovery after early falls following data from market researcher Kantar Worldpanel showing sales fell 1.9% in the 12 months to 22 June, ending 0.2% down at 284.5p. Morrisons (MRW) suffered more heavily, dropping 2% to 179.7p after its sales fell 3.8% over the period. Sales at Sainsbury’s (SBRY) rose 3%, but the shares shed 0.7% to 313.2p.
Outside the FTSE 100, Ocado (OCDO) was a big faller, as its first half figures showed a marked reduction in sales growth in the second quarter. Shares in the online shopping group fell 4.4% to 355.1p.