What’s Going On Here?

• The UK’s manufacturing output in April fell by the most in over 17 years;
• The British economy shrank.

What Does This Mean?

• British manufacturing production in April fell by 3.9% compared to March.
• Brexit was partly to blame.
  • With the UK initially planning to leave the EU in March, companies stockpiled goods in anticipation of potential supply shortages, helping the manufacturing sector to pick up steam earlier in the year.

The reason for UK stockpiling goods in participation of Brexit is because a lot of goods in the UK are imported, which means Brexit would reduce the supply tremendously.

• But with Brexit delayed until October,
  • companies appear to be using up their existing supplies rather than ordering more;
  • carmakers’ planned shutdowns to mitigate potential Brexit disruptions caused a 24% downshift in April’s vehicle output.
  • That helped the UK economy overall to shrink by 0.4% in April compared to March – its biggest monthly drop in three years.

Why Should I Care?

For markets: Pound not so sterling.

• Investors sold the British pound (likely as Monday’s data showed the economy faltering).

When an economy isn’t doing well, investors tend to ditch its currency and buy into comparably safer economies instead.

• On the other hand, a cheaper pound should make UK stocks more attractive to foreign buyers, encouraging investment as foreign currencies go further – which may partly explain why UK stocks rose overall on Monday.

Zooming out: Nosediving into the UK.

• Fosun Tourism Group (Chinese owner of all-inclusive vacation operator Club Med) has approached troubled travel company Thomas Cook (the world’s oldest) with a takeover offer, putting its yuan to work.
• Thomas Cook has warned thrice of falling profit last year, and its shares have descended more than 85%.
• Fosun (already its biggest shareholder) would take over Thomas Cook’s tour business.Its airline is open to another buyer, as European rules prohibit Fosun from flying Thomas Cook’s wings too.

Content source: Finimize. (2019) Sinking Island. Available from: https://www.finimize.com/wp/news/sinking-island [Accessed 16 June 2019]