Prior to this morning’s publication of UK construction PMI the Pound gained on the Euro for the first time in four days. Sterling was able to rise against its European rival on the strength of speculation regarding the outcome of the Bank of England’s policy meeting tomorrow, with the majority of economists forecasting that the central bank will maintain the current 375 billion Pound asset-purchase target.
The Pound Sterling Exchange Rate was in the region of 1.1774 against the Euro as of 10:40 am
However, the Pound later shed its gains as construction output in the UK was shown to have contracted for a fifth month.
Although a report compiled by Markit/CIPS showed that construction output rose from February’s reading of 46.8 (a forty-month low) to 47.2 in March, the figure remains below the 50 mark which separates growth from contraction and was lower than economists anticipated.
In a statement accompanying the data Markit’s senior economist Tim Moore asserted: ‘Shrinking investment spending and intermittent output disruptions amid unusually bad weather kept the UK Construction PMI entrenched in contraction territory at the end of the first quarter. The negative print for construction output mirrors that seen for manufacturing, and now leaves the service sector as the last great hope for avoiding another slide in UK GDP.’
It wasn’t all doom and gloom though, Moore went on to state: ‘some pockets of optimism for the construction sector can be drawn from the latest survey. Signs of rising housing activity were the main positive development, while March also saw the slowest drop in construction new orders for five months. Construction companies are upbeat overall about their own prospects for output growth over the year ahead, particularly in respect of the residential building sector.’
Similarly, David Noble (Chief Executive Officer of the CIPS) commented: ‘The construction sector seems to have a spring in its step as confidence hit its highest level in a year despite the challenging state of the weather, performance and output in March.’
However, this result means that a huge amount now rests with tomorrow’s Services PMI data. Economists are expecting the figure to have dipped to 51.5 from last month’s 51.8.
Earlier today the Pound hit a two-week low against the US Dollar after the British Retail Consortium issued a report showing acceleration in shop-price inflation in March. After the UK construction news the Pound was little changed against its American rival but dipped to 84.85 Pence per Euro.
Sterling is likely to experience significant fluctuations tomorrow following the publication of UK services PMI and the Bank of England/European Central Bank’s rate decisions.
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