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Sterling slumps on low business confidence

The UK's underwhelming services sector PMI puts pressure on the Pound while Trump sticks to his Mexican border wall pledge in his State of the Union address.

Sterling slumps on low business confidence

Business confidence in the UK has hit its lowest level since the EU referendum in June 2016. The Purchasing Managers’ Index (PMI) for the services sector, which accounts for 76 per cent of the economy, fell from 51.2 in December to 50.1 in January, just missing contraction territory. Any reading above 50 indicates expansion.

The low reading dragged the composite number for the UK economy to 50.3, indicating businesses are becoming increasingly risk averse and are holding off making key decisions until there is more clarity around Brexit. As the risk of growing economic contagion and the likelihood of a no-deal Brexit is ever so high, the UK economy could contract in the first quarter of 2019.

Sterling also felt the pinch, having fallen by more than 0.7 per cent against the Dollar and Euro, trading at $1.2930 and €1.1360, respectively.

Overnight, Donald Trump made his annual State of the Union address. Speaking of the “economic miracle” taking place in the US, Trump called for co-operation and bipartisanship in Congress to keep it alive. He also said that any agreement with China “must include real, structural change to end unfair trade practices and protect American jobs”, signalling he will play hardball with Beijing later this month. Trump pulled back from calling a national emergency over illegal immigration but reiterated his vow to build a wall along the Mexican border, raising concerns of a further government shutdown if no funding is allocated by next Friday, 15 February.

In a data-light day, the focus will be on Brexit and UK Prime Minister Theresa May’s meeting with European Commission President Jean-Claude Juncker tomorrow morning. Meanwhile, The Telegraph reported overnight that UK cabinet ministers have secretly held talks on plans to delay Brexit by eight weeks.

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