4 Mar 2016
GBP: PMI data a concern for UK growth - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that the drop in the UK Services PMI index from 55.6 in January to 52.7 in February is certainly indicative of a more meaningful slowdown in real GDP with the services PMI much more closely correlated with real GDP growth.
Key Quotes
“The February print was the weakest since March 2013.
Of greater concern was the fact that the emergence of ‘Brexit’ concerns had weighed on business sentiment and with that likely to escalate as we advance toward the referendum date, there is certainly a risk that Brexit uncertainty could have a more meaningful impact on broader economic conditions. What we can’t be sure of at this stage is the extent of the role Brexit concerns played last month. Broader financial market turmoil also played a part and of course with this factor now likely easing given the recovery in risk appetite, there is a chance of a recovery in business sentiment too.
Still, with the BOE pushing further and further back on rate increases, the pound remains vulnerable to shifts in sentiment. The higher the pound moves on improving risk sentiment, the more likely Brexit developments will begin to weigh on sentiment again, so we see limited upside for the pound from here.”
Key Quotes
“The February print was the weakest since March 2013.
Of greater concern was the fact that the emergence of ‘Brexit’ concerns had weighed on business sentiment and with that likely to escalate as we advance toward the referendum date, there is certainly a risk that Brexit uncertainty could have a more meaningful impact on broader economic conditions. What we can’t be sure of at this stage is the extent of the role Brexit concerns played last month. Broader financial market turmoil also played a part and of course with this factor now likely easing given the recovery in risk appetite, there is a chance of a recovery in business sentiment too.
Still, with the BOE pushing further and further back on rate increases, the pound remains vulnerable to shifts in sentiment. The higher the pound moves on improving risk sentiment, the more likely Brexit developments will begin to weigh on sentiment again, so we see limited upside for the pound from here.”