THE TAKEAWAY: UK PMI for construction reported at 49.3 in November -> Disappoints expectations for growth -> Sterling rises despite worse index
A rebound in UK construction activity was quickly undone, as Markit’s Purchasing Managers’ Index for November was reported at 49.3. October’s PMI for construction was reported at 50.9, following two previous months of declining activity, yet November failed to show continued expansion and disappointed expectations for a 50.5 PMI. Any PMI below 50.0 indicates a contraction in sector activity.
The drop in construction activity was driven by reductions in home and commercial building, according to Markit. Survey respondents expressed a lack of new work to replace completed jobs, as incoming new business dropped by the sharpest rate since 20009. The rate of decline in construction sector employment was also the sharpest since December 2010.
The UK economy ended a double dip recession when it expanded in Q3; however the growth was attributed to one time factors like the Olympics and a banking holiday in the previous quarter. Sterling investors remain focused on determining if the decline in GDP will recommence in Q4. Markit Senior Economist Tim Moore said, “November’s PMI survey suggests that constructionoutput has yet to hit rock bottom.”
Despite the disappointing PMI, Sterling still rallied in forex markets as optimism builds ahead of today’s meeting of EU finance ministers. GBPUSD is currently trading around 1.6120, and resistance could be provided by the current 2-month high at 1.6178. The key 1.6000 figure could provide support.
GBPUSD Daily: December 4, 2012