UK Construction in Fastest Drop in Seven Years, Pound Increases

The latest Markit/Chartered Institute for Procurement and Supply construction PMI, has revealed that July saw the steepest fall in output in the sector since June 2009, although new order volumes were reduced by a slower pace than what was found in June.

The index score remained below the neutral 50 mark in July on 45.9, but this was only fractionally down from the 46 that was recorded for June, since mid-2013 the index has been over the neutral level until recent months.

Anecdotal evidence from the survey suggests that ‘Brexit’ has been a considerable factor in how business in the sector has been weighed down, particularly in the commercial building sector.

There was also a drop in civil engineering activity for the first time in 2016, while residential construction also declined at a steady pace in July, but the rate of contraction in total eased from June’s three-and-a-half year low.

Respondents in the survey also reported that there was a decline in the strength of order books, which acted as a brake on business activity, a wait and see attitude towards the UK economy has prevailed in light of the decision to leave the European Union (EU).

The plummeting value of sterling in recent weeks is thought to have led to fresh enquiries in the industry from international clients, leaving patterns of demand to be more resilient than expected, although the fall in pound has left the price of materials increased at its highest rate since March 2015.

In addition to the poor manufacturing PMI results released yesterday, the chances that the Bank of England will lower interest rates in their decision on Thursday are likely to have increased.

This may have prompted a short squeeze on the pound, as the prospect of lower interest rates may have increased pressure to sell sterling, so far today the GBP/USD has risen in favour of the pound rising to $1.324 from $1.318.

Societe Generale in their daily round up said that the UK is another economy in need of fiscal and monetary policy working together, a weaker pound might be helpful for margins, but it’s fiscal policy which would be most effective in compensating for the lower demand that is hitting the UK economy, the more uncertainty there is about fiscal policy, the more downside there is to sterling.

As for the current lack of clarity about policy towards inwards investment into the UK, at a time where there’s a £100 billion current account deficit to fund, there would have to be a substantial rise in gilt yields to attract more foreign money, the bank warned.

Industrial Producer Prices up by 0.7% in Euro Area

Euro Area producer prices exceeded all expectations by rising to a higher than anticipated 0.7% in the euro area and 0.8% in the EU, during June compared to the previous month, most analysts predicted a rise of in the region of 0.4%.

In June 2016, compared with June 2015, industrial producer prices decreased by 3.1% in the euro area and by 2.9% in the EU.

In the euro area prices increased, due to rises of 2.4% in the energy sector, of 0.3% for intermediate goods and of 0.1% for both capital goods and non-durable consumer goods, while prices remained stable for durable consumer goods, overall industry excluding energy prices increased by 0.2%.

For the EU, the 0.8% increase is due to rises of 2.8% in the energy sector, 0.3% for intermediate goods, and of 0.1% for both capital goods and non-durable consumer goods.

All member states experienced price rises, where the Netherlands 2.6%, Denmark 2.5%, Spain 1.8%, and Estonia 1.6% saw the biggest increases, only in Cyprus prices declined by minus 0.2%.