Pound Sentiment Remains Bearish

The UK pound has continued to show weakness as trading began this morning, as the GBP/USD rate is down to $1.3131, a slide down from $1.325 last week, as the IHS Markit report released last Friday, which revealed that the UK economy was at its lowest level for seven years, continues to stalk sterling into this week

Against the euro, the GBP/EUR rate has been a similar pattern, with the pound losing ground, dropping to $1.19 from over $1.2 last week.

In their daily report, forex company Monex Europe said that due to a litany of negative developments in the economy, its likely that a recession could be on the way in his quarter for the UK.
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The question now they asked is just how deep and sustained this slump in output will prove to be, with services activity and new orders falling at their quickest rate in seven years, the risk that this will delay investment and hiring has increased significantly.

If the latest economic trends are extended or worsens into August and July, even the reduced forecasts recently seen for growth in 2016, by such organisations like the IMF, will start to look optimistic.

Germany Business Sentiment Declines

The latest Ifo business climate survey has revealed that confidence in the German economy has weakened, following the decision by the UK to leave the European Union, the sentiment index for July dropped to 108.3 from 108.7 that was recorded in June.

In contrast, the assessments of the current business situation have improved from the respondents, as the German economy remains resilient.

The business climate fell in the manufacturing sector, although businesses in the sector were more satisfied with their business situation, capacity utilisation rates rose by 0.3 percentage points to 84.7 percent.

Overall, manufacturers are pessimistic about their expectations on the months ahead, particularly in the automotive branch, who paint a bleak picture of their prospects for this year.

In wholesaling the business climate also deteriorated in July , after a positive showing in last month‘s survey, those in the sector massively revised downwards their view of their market, with the index score at 11.8, a significant fall from 15.1 in June.

Although their business expectations are slightly optimistic, in retailing the index actually rose, while assessments of the current business situation were positive, at the same time retailers scaled back their optimistic expectations from June’s levels.

In the construction industry, the business climate indicator once again hit a new record high, this was mainly due to far more optimistic business expectations on the part of contractors, for July the sector index score was 5.4, up from 4.8 the previous month.

The German Federal Statistical Office, has disclosed that the construction industry had a positive month in May, as new orders increased by 3.5% in comparison to the official figures for April, while in building construction and civil and underground engineering, in businesses where there are 20 or more employees, turnover increased 12.3% compared with May 2015.

More bad news for business confidence is expected later in the week, with unemployment and euro area GDP figures not anticipated to be convincing steps forward for the European economies involved.