The Pound Sterling to Euro (GBP/EUR) exchange rate was little changed on Tuesday as a positive Construction Purchasing Managers Index (PMI) report failed to inspire investor confidence in the wider UK economy.
Construction growth across the UK rallied unexpectedly in the first month of 2015 after activity was boosted by improved order books and rising confidence in the sector.
According to Markit/CIPS, the latest construction PMI rose to a reading of 59.1, a jump from the 17-month low figure of 57.6 recorded in December.
The number beat economist forecasts for a reading of 57.
‘UK construction companies have found their feet again after a protracted slowdown in output growth at the end of 2014. In short, the peak speed of the construction recovery seems to be over, but reports of its death have been greatly exaggerated,’ said Tim Moore, senior economist at Markit and author of the report.
Despite last week’s official data release suggesting that construction output fell sharply at the end of last year, the Markit compiled PMI suggests that the sector will rally strongly in 2015.
The report also showed that growth increased across all major construction sectors and new orders rose by their fastest pace in three months.
Bank of England rate decision in focus
Following the release of the report the Pound remained below the 1.33 level against the Euro and saw little movement as investors brushed off the data and chose to focus on the upcoming Bank of England (BoE) interest rate decision due to be announced on Thursday.
Economists were also sceptical that the construction will be able to maintain its momentum.
‘New orders were up, but staffing levels have yet to catch-up showing at their lowest level of growth for 13 months, which may slow down activity as companies struggle to keep up with new demand. With supply chains under pressure, supply shortages, longer delivery times and a sharp fall in the performance of suppliers there may still be challenges ahead,’ said David Noble, CEO at the Chartered Institute of Procurement and Supply.
Eurozone Data Disappoints
The Pound is forecast to make some gains against the Euro as the session progresses as data out of the Eurozone came in worse than expected.
Producer Price inflation across the Eurozone fell by -1% on a monthly basis and by -2.7% on an annual basis adding to concerns over deflation.
Inflation data out of Italy also raised fears as it showed that the nation slid into deflation territory in the first month of the year.
