• UK construction PMI has slipped to the lowest since August 2016 vastly missing the forecast
  • Investments could slow down going forward which might be a drag on GDP growth
  • GBPUSD drops as chances for a rate hike could dissipate

The UK’s economy seems to be entering on track to recession given the latest PMI releases. Manufacturing slowed down a bit last month while the construction sector marked a noticeable decline in the same period plunging from 51.1 to 48.1 (the consensus called 51.1 as well). It means that managers expect contraction in construction going froward for the first time since August 2016.

link do file download linkUK construction PMI declined in September significantly below 50 points. Source: Macrobond, XTB Research

Needles to say that uncertainties surrounding Brexit negotiations could have likely been one of the largest factor which weighed on managers’ enthusiasm in September. Notice, construction PMI has been slumping since June, hence today’s releases is a continuation of a trend, with clearer momentum though. Given such a mighty decline one could assume that companies may postpone their investment decisions which could trim GDP growth in the two last quarters.

link do file download linkUK construction PMI may herald a possible slump in investments in the two last quarters of this year. Source: Bloomberg

As it was depicted at the chart above, the ongoing sluggishness in construction PMI might suggest a noticeable downturn in investments similarly to that seen a year ago. Taking into account fading optimism in consumption as well as investments we could assume that chances for a rate hike in the UK this year could be pared back. Once again let’s underline that the sole reason why the BoE wants to tighten monetary policy is heightened inflation which eats into real wage growth.

link do file download linkThe EURGBP is bouncing off a support being fueled by disappointing UK construction PMI. Source: xStation5

Having looked at a technical view one could conclude that the pair seems to continue increasing towards 0.8900 after respecting its key support zone at around 0.8740. That said, if the GBPUSD keeps on dropping, it could act in favor of further gains on the cross.