Markit PMI data released showed major falls in confidence, lending further to action being taken by the Bank of England on Thursday.
Yesterday, The UK Markit/CIPS PMI (Purchasing Managers Index) fell to 48.2 for July, in the first set data of full data to be released since the UK voted to leave the European Union and the lowest figures for manufacturing activity since February 2013. A figure below 50 signals contraction, this figure signals that both production and incoming new orders were affected, however exports benefited from a weaker pound. This figure signals that the impact from increased business uncertainty from the EU referendum has started to be felt on the market.
The Bank of England’s Monetary Policy Committee will meet on Thursday where a drop in the base rate is expected. The current base rate is 0.5% and could be cut by 25 base points to 0.25%. An interest or base rate cut normally weakens the currency in question as investors earns less back whilst they hold it.
Yesterday’s worse than expected manufacturing data will provide little hope for clients looking at buying foreign currency with Sterling. Yesterday the rate dropped down to 1.17 after the disappointing manufacturing data and we could see the rate weaken even further this week if the BoE decide to cut interest rates. I predict the GBP/EUR rate to drop between 1.13 – 1.15 if the BoE decide to act.
Today clients with Sterling should keep an eye out for the latest set of construction data is set to be released. The expected drop is down to 43.8 from 46.0, signalling a sharp contraction within the construction industry. This data release similarly to the manufacturing data yesterday paints a picture as to the effects that the EU referendum decision has had on business conditions within the UK.
For anyone with a currency requirement, the main event will be the Bank of England’s interest rate decision and subsequent monetary policy statement which should give an indication into the subsequent course of action that the BoE may implement.
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