UK Pound Falls on Weaker Construction Data

Construction activity contracted for the first time in 12 months, putting pressure on sterling

Alliance News 3 October, 2017 | 4:02PM
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The British pound weakened against other major currencies in the European trading session on Tuesday, after data showed that the UK construction sector contracted in September on weak new orders.

Data showed that the UK IHS Markit/CIPS construction Purchasing Managers' Index (PMI) fell to 48.1 in September from 51.1 in August. The reading was expected to remain unchanged at 51.1.

The score was below the 50-change threshold for the first time in 13 months. The latest reading signaled the fastest decline in overall construction output since July 2016.

In European trading, the pound fell below 1.13 against the euro to 1.12657, and to 1.325 against the dollar, having traded up to 1.34 last week. Sterling dropped through 150 yen, a level it had held for much of September.

Sterling fell as traders revised assumptions about when the Bank of England will next raise interest rates. The Bank's governor, Mark Carney, last week gave the strongest indication yet that the base rate will be raised from its current record low level at the next meeting in November. Recent strong employment numbers and stronger inflation have supported those on the monetary policy committee who believe the UK could cope with higher interest rates. 

While the Bank doesn't target economic growth, it will factor in the economic conditions of the UK before deciding to change interest rates.

This week's PMI surveys on Britain's economic sectors have so far come in lower than expectations. Yesterday's manufacturing survey was weaker than forecast but the sector is still expanding. Wednesday's data on services will be closely watched for two reasons: services is the dominant sector in the economy, and the reading will be the last before third-quarter economic growth is announced at the end of October. 

The pound has rallied sharply this year as traders bet on an interest rate rise. While the Federal Reserve has already started tightening monetary policy, the eurozone and Japan still have yet to begin the process. 




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