Home » Currency Note » Currency Note » UK economy slumps into stagnation

Heightened political uncertainty and continuing Brexit-related concerns have created an economic slump in Britain. Figures released yesterday showed that the UK’s dominant services sector has fallen to the brink of stagnation. In January, the Markit services PMI reading dropped to 50.1 from 51.2 the previous month and some way below the 51.0 the markets had been expecting. Any figure above 50.0 shows growth, so the latest reading is some cause for concern.

The reading was the lowest for two-and-a-half years and the second-weakest since December 2012. Worryingly, new business volumes declined for the first time since July 2016 and at the sharpest rate since April 2009. Markit said “A number of service providers reported that Brexit-related concerns had dampened client demand and resulted in delayed decision making on new projects,” which is very similar to what we saw on Monday with the construction sector. Sterling weakened further against the euro and dollar following the news, dropping below $1.30. The pound is certainly on a downward trend at present and some positive news will be required to halt the decline.

It will be hoped that the uncertainty which had plagued the UK for the past two years will come to an end soon, as Theresa May is set to visit Brussels on Thursday for talks with the European commission president, Jean-Claude Juncker. It was reported that the prime minister has told her Cabinet that Brexit will happen on 29 March 2019 and there will be no extension of article 50. Remarkably, Chris Grayling, the transport secretary, said that the EU will be to blame if there is a no-deal Brexit. He also said “I’m expecting the flow of trade in and out of the country in the event of a no-deal Brexit will carry on relatively normally.”

The eurozone also continues to struggle at present, with PMI figures showing that private sector growth has hit its weakest level since mid-2013. The euro area’s services PMI came in at 51.2 last month, unchanged from December’s 49-month low. New business expanded at the weakest pace for 50 months and the rate of job creation eased to the lowest since the end of 2016. Worrying times for the UK and Europe.

Donald Trump belatedly delivered his State of the Union address to Congress last night and described Robert Mueller’s investigations as ‘ridiculous’ and ‘partisan’. He called for unity between Democrats and Republicans, but called for ‘zero-tolerance’ immigration policies. He stopped short of suggesting he will call a national emergency if he doesn’t get funding for his wall, but that doesn’t mean he won’t. You never can tell with Trump.

Today we have the balance of trade figures from the US and construction PMI from Germany. In December, the reading came in at 53.3 so it will be interesting to see what last month’s performance was.

In the meantime, do make sure your budget is protected against volatility. Speak to your Personal Trader on 020 7898 0541 to find out how a forward contract can help you ring-fence your money against market changes.

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