Sterling struggles as September’s data shows the economy slowing more than expected
Economist at HiFX comments on this morning’s PMI data, Andy Scott, said: “Sterling dropped back against the dollar on Monday, despite the U.S. currency being under pressure following the much weaker than expected employment report on Friday. It also fell against the euro after data on the dominant service sector for last month showed activity slowed much more sharply than expected, with the index dropping to its lowest in 2-1/2 years.
“The combined PMIs for the last quarter are expected to show growth slowed to 0.5%, but more concerning is the recent loss of momentum going into the current quarter that could see growth slow to just 0.3%. If the weakness continues – which given the external challenges from abroad is more likely – the Bank of England will struggle to justify the case being made for a rate hike in the near future. Their meeting this week is expected to show just Ian McCafferty as the lone hawk voting for a hike, with other members who had been expressing similar views likely to keep their powder dry as the outlook darkens.
“The effect of the turbulence from China and the dramatic slowdown in emerging markets is still being assessed, but it appears to starting to impact on economic activity here. Domestic demand has remained strong up until now and with the housing market showing signs of strengthening, that should help support sentiment alongside unemployment being at a 7-year low. The risks for UK companies are however building and we’ll need the euro zone to improve further to help offset a slowdown elsewhere, or the BoE’s chief economist’s warnings about cutting rates may become a greater possibility.”
