The UK manufacturing industry has been going into a slowdown — reaching its lowest point in more than two years as trust in British business plummets; compounding the probability of the GBP reaching parity with the dollar.
Latest data from S&P global, from June, revealed that manufacturing output slowed almost to a halting pace, with additional orders contracting for a first home in 1.5 years.
This marks diminishing business trust, since May 2020, when the first series of pandemics went into place — with the overall war number of companies who participated an increase in production dropping to a reported 47%, compared to 55% in the month previous.
Reasons stated for this reduced PMI included less orders from new exports, overall reduced domestic demand for goods, the Russia Ukraine conflict, a poor economic outlook, fewer raw materials, and a slowdown with China.
Sophisticated investors may point out that global capital will have a dampening effect on the markets; the dollar is anticipated to remain strong for some time, however the GBP has probably been overvalued for quite some time now.
Perhaps for this reason, the Bank of England became one of the first central banks to increase interest rates; in order to address its stagflation — and a long recession now seems unavoidable, and necessary in order for the economy to reset itself.
The living squeeze on British households is a multifaceted problem with deep problematic cultural, fiscal, and manufacturing roots, which spells a recessive future for millennials and Gen Z.
The US dollar holding status as the world’s reserve currency probably ended around 2008 with the financial crisis. Up until that point, the illusion of reserve status was facilitated by globalisation — with the central banks coordinating policies and QE rounds.
There are many indications that this world is now over, with the Fed now growing independent from the central banks. What was previously feared to cause a more volatile British pound — the Brexit — has now matured and clarified into the general recession for the Collective West (Europe, Britain, the US).
With the GBP more exposed, and no manufacturing power or resources to back it up, and the US likely to split with countries like the Netherlands perhaps going their own way, as the world’s emerging economies grow more organised — once again, we are likely to see parity with the dollar.