The IHS Markit-CIPS UK manufacturing purchasing managers’ index (PMI) showed a reading of 52.8 last month, its lowest level in three months, down from the 54.2 recorded in December. Rob Dobson, director at IHS Markit, which compiles the survey, said: “The start of 2019 saw UK manufacturers continue their preparations for Brexit. “Stocks of inputs increased at the sharpest pace in the 27-year history, as buying activity was stepped up to mitigate against potential supply-chain disruptions in coming months. “There were also signs that inventories of finished goods were being bolstered to ensure warehouses are well stocked to meet ongoing contractual obligations.
“Despite the temporary boost provided by clients’ pre-purchases and efforts to build-up stocks, the underlying trends in output and new orders remained lacklustre at best.
“Growth of new order inflows slowed sharply, and new export orders were near-stagnant, contributing to the weakest trend in output since the month following the EU referendum.”
Reacting to the data release, as of 11.00AM UK time the pound is trading at €1.1386, down half a percent from opening levels of €1.1452.
Against the US dollar, Sterling was at $1.3058 after dropping from the open of $1.3109.
Lee Hardman, a currency strategist at MUFG in London, said: “The PMI data has taken the shine off sterling after last month’s rally and there is a bit of profit taking at these levels.”
Sterling had been hovering around opening levels after a week of Brexit twists and turns saw Prime Minister Theresa May braced to head back to Brussels after MPs voted for the Conservative leader to seek further concessions on the Irish backstop.
But European Union chiefs instantly rebuffed the vote and declared the backstop is not up for renegotiation.
Michael Brown, Senior Analyst at Caxton FX, said the pound is set for more weeks of volatility until uncertainty is removed from Brexit.
He said: “While the markets have absorbed some uncertainty based on a low probability outcome of a ‘no-deal’ exit, the pound suffered a setback earlier this week, falling by around 0.8 percent after amendments that would have ruled out such an outcome were not passed in Parliament.
“Sterling is unlikely to significantly extend its gains in the coming weeks unless official confirmation of an extension to Article 50 emerges and as the political uncertainty continues.
“Overall, it is likely that the Pound will begin to drift lower ahead of the second ‘meaningful vote’ if the current stalemate continues with a reversal of this month’s gains becoming more likely.”
In latest Brexit developments, German justice minister Katarina Barley reiterated warnings from senior EU chiefs over the bloc being unwilling to budge over the Irish backstop.
Ms Barley said the EU does not see any solution to resolving the issue of Irish border arrangements after Brexit other than having a backstop.
She told Irish broadcaster RTE: “We definitely will not accept a border in the normal sense between Ireland and Northern Ireland, that is something that we’ve been very clear about from the very beginning.
“The problem is we don’t see any other proposition by the British government.”
European Council president Donald Tusk had previously insisted that the Withdrawal Agreement struck last November was not open for renegotiation.
Snapping back at Mrs May’s performance in the House of Commons, a spokesman for Mr Tusk said: “The Withdrawal Agreement is and remains the best and only way to ensure an orderly withdrawal of the UK from the European Union.
“The backstop is part of the Withdrawal Agreement, and the Withdrawal Agreement is not open for re-negotiation.”
The Commons voted by 317 to 301 in favour of the backstop changes – which Mrs May said showed there was a means of securing a “substantial and sustainable majority in this House for leaving the EU with a deal”.
The vote is not legally binding on the Government but will impose massive political pressure on the Prime Minister to delay Brexit from its scheduled date of March 29 if she cannot secure a new deal from Brussels.