Weak UK Construction PMI to Weigh on the British Pound


Talking Points

The UK construction PMI was lower than expected in June, as was Monday’s PMI for the UK manufacturing sector.

Taken together, they suggest that to raise UK interest rates would be a problem, and that’s a negative for the British Pound.

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The purchasing managers’ index for the UK construction sector fell to 54.8 in June from its 17-month high of 56.0 in May, missing the consensus forecast of a smaller dip to 55.0. Taken together with Monday’s lower-than-predicted PMI for the UK manufacturing sector, the figure adds to the evidence that the outlook for the UK economy is not yet bright enough for the Bank of England to increase interest rates.

The manufacturing data showed a fall to 54.3, below the previous 56.3; an unchanged number had been predicted. Now, attention will turn to tomorrow’s service-sector PMI to complete the picture.

In response to the construction figure, the Pound slipped then recovered. However, if the data continue to miss expectations there’s likely to be a toning down of the recent hawkish rhetoric from the central bank, which will be negative for the currency.

Chart: GBPUSD Five-Minute Timeframe (July 4, 2017)

Weak UK Construction PMI to Weigh on the British Pound

Chart by IG

IHS Markit, which produces the data, noted that not only did construction activity growth slow from May’s 17- month high but there were also weaker rises in new orders and employment, while business optimism eased to its lowest so far in 2017.

June data revealed weaker growth momentum across the UK construction sector, with business activity, new work and employment all expanding at slower rates than in May,” the company said. Survey respondents commented on signs of renewed risk aversion among clients, reflecting concerns about the economic outlook and heightened political uncertainty. The latest survey also indicated that construction companies were the least optimistic about their near-term growth prospects since December 2016,” it added.

— Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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