In light of the early release of the UK services sector PMI
figure, we now have a good picture of how the UK economy performed in August. After
an awful slump in July to kick off the second half of the year, conditions in
the UK clearly picked up in August.
UK construction remains in the doldrums, contracting in
August for only the second time in twenty months. However, UK manufacturing growth
was nowhere near as bad as expected, only marginally contracting compared to
the rapid slowdown that was anticipated. Once again, the UK services sector
appears to have bailed the UK economy out, showing some truly impressive growth
– the best in five months.
This really suggests that the Bank of England’s prediction
that the UK economy could bounce back in Q3 could be spot on. Still, declines
being seen in the UK construction sector will remain a grave concern because
while it is a relatively small segment of the economy, it has proven this year
that it can weigh materially on GDP figures.
The upturn in the UK economy in the past month could well be
Olympics-related, so the market will be right not to get ahead of itself. It certainly
does not remove the possibility of the BoE deciding on further QE later this
year. What it probably does do is put to bed any hopes or expectations that the
BoE will do any further monetary easing on Thursday. More evidence will be
needed if we are to have any confidence that we will see a sustained bounce back
for UK GDP, but this is some rare good news from the domestic economy. Sterling
has benefited accordingly as well, climbing half a cent today against the euro
to reach €1.2650.
Richard Driver
Currency Analyst
Caxton FX
