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UK Construction Sector Returns to Expansion According to PMI

UK Construction Sector Returns to Expansion According to PMI

Benjamin Spier, Technical Strategist

THE TAKEAWAY: UK PMI for construction rises to 50.9, beats expectations -> PMI release still contains a lot of negativity -> Sterling trading steadily

UK construction activity unexpectedly expanded in July according to Markit’s Purchasing Managers’ Index. The PMI for construction was reported at 50.9, beating expectations for 48.7 and up from June’s construction contraction. A PMI above 50.0 indicates expansion.

Expansion was seen in the commercial subsector, according to Markit, while house building and civil engineering activity continued to decline. UK construction companies reported a second consecutive month of lower purchasing activity. The amount of construction companies that predict an increase in activity over the upcoming year is twice more than those that predict a decline, this helped support a marginal rise in employment in July.

Despite a rise in activity, the tone of Markit’s release was still slightly pessimistic. Markit Senior Economist Tim Moore said, ‘July’s survey offered little sign of an imminent rebound in the UK construction sector, with total activity rising only marginally after well documented temporary factors had weighed on output last month.

The Bank of England’s 80 billion Pound Funding for Lending Scheme opened yesterday, seen as a program that could possibly increase credit and stimulate the British economy. The BoE said they will consider further monetary action, maybe even an additional rate cut, based on the success of the lending program. Later today, the central bank will decide August’s interest rates and asset purchase target; economists expect both to remain unchanged.

The British Pound did not significantly react to the construction PMI; the pair has traded steadily in today’s session above 1.5525. Cable declined below 1.5600 yesterday following the FOMC’s decision and more volatility could be expected today following the ECB and BoE meetings. 1.5475 has provided support for a month-long GBPUSD range and 1.5750 has provided resistance.

UK_Construction_Sector_Returns_to_Expansion_According_to_PMI_body_gbpusd.png, UK Construction Sector Returns to Expansion According to PMI

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