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GBP Falls on Construction PMI Miss, Brexit Turmoil

GBP Falls on Construction PMI Miss, Brexit Turmoil

2017-10-03 09:55:00
Martin Essex, MSTA, Analyst
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Talking Points

- GBP/USD fell and EUR/GBP rose Tuesday as the UK construction PMI pointed to contraction in the sector.

- The EU warned again that not enough progress has been made in the Brexit talks to move on to discussing the future relationship between the UK and the EU.

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The British Pound fell again Tuesday after a disappointing purchasing managers’ index for the UK construction sector in September and more negative comments from the EU suggesting that not enough progress has been made in its Brexit negotiations with the UK.

The construction PMI came in 48.1, below both the expected 51.1 and the previous 51.1. A number below 50 points to a contraction in the sector and IHS Markit, which compiles the data, said business activity fell in September for the first time in 13 months, that the data showed the sharpest drop in civil engineering work since April 2013 and that new orders and input buying had both dropped.

As the report suggested that UK construction could be heading for recession, the British Pound fell across the board, with GBP/USD dropping and EUR/GBP rising.

Chart: EUR/GBP Five-Minute Timeframe (October 3, 2017)

GBP Falls on Construction PMI Miss, Brexit Turmoil

Chart by IG

Meanwhile, European Commission President Jean-Claude Juncker said not enough progress has been made in the EU’s Brexit talks with the UK to move on to the subject of the future relationship between the two sides. “Until now, I can’t say that we are ready to enter the second phase of the negotiations,” he told the European Parliament in Strasbourg.

His words were echoed by the EU’s chief Brexit negotiator, Michel Barnier, who said there had not been sufficient progress and that “serious divergences” persisted, including on the divorce bill.

On the British side, UK Prime Minister Theresa May is facing persistent talk of a leadership challenge from Foreign Secretary Boris Johnson, a Brexit hardliner, as the ruling Conservative Party holds its annual conference in Manchester. May said her Cabinet’s focus is to get the best possible Brexit deal.

However, the head of the Democratic Unionist Party in Northern Ireland, which May has to keep on board to have a majority in Parliament, took a harder line. “I have already said how important the UK single market is for Northern Ireland so there cannot be any barriers between Northern Ireland and the rest of the United Kingdom,Arlene Foster told a breakfast meeting on the sidelines of the conference.I am saying that we believe, in relation to leaving the European Union, that we should leave the customs union and we should leave the single market. You can’t be any clearer than that.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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