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UK data point to resilience against Brexit vote
The pound moved with considerable increases through the week as the release of UK economic reports point to recovery following the Brexit vote.
An economic report released by the market and consumer researcher GfK revealed that the UK consumer confidence increased in August to -7 compared to the previous month’s result of -12. According to the report, the main drivers of the increase in confidence were stronger-than-expected economic data, the decrease of prices, and low levels of unemployment. The same survey also noted that consumers’ tendency to save decreased in August.
Recent reports have also indicated that consumers remained unaffected following the UK’s vote to exit the European Union, although there were some signs that they were less willing to spend big. An earlier survey by YouGov stated that consumer confidence in August had its sharpest monthly gain of the last three years, while a report by the Office for National Statistics (ONS) indicated that retail sales increased in July by 1.4% in relation to the previous month.
Thursday’s release of the Markit Purchasing Managers’ Index (PMI) for the UK manufacturing sector showed an increase to 53.3 in August following July’s figure of 48.3. Forecasts prior to the report were only for 49 and the result above 50 is a sign of expansion of the sector. The PMI survey stated that the weaker level of the pound had a positive effect on exports but at the same time has pushed the manufacturing costs upwards. According to the PMI survey, August’s monthly increase was the largest ever recorded, while an earlier survey released two weeks ago showed that exports were increasing at the fastest rate since 2014.
Markit Purchasing Managers’ Index (PMI) for the UK construction industry, released on Friday, showed an increase for the sector to 49.2 following July’s level of 45.9 but has not managed to reach the 50 level. July’s level was the lowest since 2009. According to the report, the UK referendum decision is the biggest factor that has a negative effect on the construction sector and there has been only a partial move towards stabilisation.
The ONS last month released an economic report which said that construction output decreased by 0.7% during Q2 of the year, following a 0.3% decrease for Q1. This implied recession has been recorded for the first time since 2012.
Since the UK referendum, the pound’s value has decreased by more than 10% both against the US dollar and the euro. Following the release of Thursday’s manufacturing PMI survey the pound increased by 1.1% against the US dollar, to 1.32737. Against the euro, the pound increased on the same day by 0.7%. On a weekly basis, the GBP/USD had an increase by 1.3% and the EUR/GBP decreased by 1.7%.
One of the most important economic releases of the week will be the EU interest rate decision, expected to be released on Thursday 08 September at 11:45 GMT. The ECB has left interest rates unchanged during their last meeting but said that it would be ready to intervene with additional stimulus measures in case that the UK’s decision to leave the EU would begin to weigh on the Eurozone’s economy.
http://www.bbc.com/news/business-37255937
http://www.bloomberg.com/news/articles/2016-09-03/pound-rally-leaves-bears-unmoved-as-brexit-s-threats-linger
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