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Pound Under Pressure after UK's Construction Activity Slumps to 10-Year Low: PMI Data

UK construction

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Pound Sterling was seen under fresh selling pressure against the Euro, U.S. Dollar and other major currencies following fresh survey data that suggests the UK economy is undergoing a rapid slowdown as it passes through the mid-year mark.

UK Construction PMI for June suggests the country's construction sector has fallen deeper into contraction territory.

The reading of 43.1 is sharply down on the previous month's reading of 48.6, and well below analyst expectations for a reading of 49.3 to be delivered.

Indeed, June 2019 will represent the worst Construction PMI in ten years.

"June data revealed a sharp loss of momentum for the UK construction sector, with business activity and incoming new work both falling at the fastest pace for just over 10 years," reads a statement from IHS Markit, compilers of the report. "The slide in construction demand was mainly attributed by survey respondents to risk aversion among clients in response to heightened political and economic uncertainty."

The disappointing construction sector numbers come a day after the Manufacturing PMI confirmed the manufacturing sector of the UK economy is also in contractionary territory.

Both hint at a disappointing reading from the headline Services PMI due out Wednesday.

"All eyes are on the services figure tomorrow, with a dire future for an already beleaguered Pound in store should this vital figure turn southwards," says Chris Beauchamp, Chief Market Analyst at IG. "Oddly enough, the Bank of England continues to mention a rate hike as if this was some kind of option for an economy facing serious headwinds, but perhaps the latest deterioration, plus the general dovish shift from other central banks, will be enough to finally put the idea to rest."

One way traffic for the Pound

Sterling has seen steady selling pressure against the Euro since mid-morning when the Construction PMI was released

Looking at the Construction PMI in more detail, IHS Markit say a fall in house building was the largest reported for three years, which construction companies linked to weaker demand conditions and concerns about the outlook for residential sales.

Commercial work fell for the sixth consecutive month and remained the worst performing area of construction activity.

The latest reduction in work on commercial building projects was the steepest since December 2009.

"The pain of Brexit indecision was felt across all three sub-sectors but the previously resilient housing sector suffered the fastest drop in three years which is frankly worrying news," says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, who sponsor the PMI report.

"Greater risk aversion has now spread to the residential building sub-sector, as concerns about the near-term demand outlook contributed to a reduction in housing activity for the first time in 17 months," says Tim Moore, Associate Director at IHS Markit.

Construction PMI

Image courtesy of Pantheon Macroeconomics

"The plunge in the construction PMI to its lowest level since April 2009 is a worrying sign that the damage wrought by Brexit uncertainty is building," says Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics. "Many clients also reportedly have scoped out projects, but are waiting until political uncertainty subsides. So if, as we still expect, the Brexit deadline is pushed back again in October, the construction sector should experience a quick recovery around the turn of the year."

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