Pound falls after weak UK construction data and Bank of England survey

LONDON, Oct 5 (Reuters) – Sterling fell against the U.S. dollar and euro on Thursday after data showed the biggest drop in UK construction activity since 2020, while a Bank of England survey showed British companies see prices rising more slowly.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI) fell to 45.0 in September from 50.8 in August, its lowest level since May 2020, when COVID-19 pandemic restrictions 19 were in full force. The figure was well below the 50 level that separates contraction from expansion.

Economists polled by Reuters had forecast a much more modest drop to 49.9.

“The construction data wasn’t particularly good, but the sector is a relatively small part of the UK economy,” said TraderX analyst Michael Brown.

“The key takeaway is that all PMI surveys are below 50, which still implies a contraction,” Brown added.

The PMI for all sectors, which includes services, manufacturing and construction, stood at 48.2 in September, its lowest level since January 2021.

At 0918 GMT, the pound was trading at 86.68 pence per euro, down around 0.1%.

Sterling was also down around 0.1% against the dollar at $1.2125, holding just above Wednesday’s six-and-a-half-month low of $1.20385.

The pound has struggled against the dollar recently as a more robust US economy has led investors to bet that US interest rates could rise further, while the Bank of England appears to be at the end of its policy cycle. fit, or close to it.

“The slowing momentum in activity, the recent decline in employment and the sharp declines in core CPI and services inflation in August are clear signs that higher interest rates are weighing more on the economy,” Ashley said. Webb, economist at Capital Economics UK, in a note. .

“That said, we still suspect that wage growth and services inflation will fall only slowly,” Webb added, noting that Capital Economics expects the Bank of England to keep interest rates at the current level of 5.25%. until the end of 2024.

Money market traders estimate a chance of around 30% that the central bank will raise its bank rate by 25 basis points at the November meeting, but that would likely be the last hike of the tightening cycle.

Still, that’s well below the price three months ago, when traders expected interest rates to peak above 6% by the middle of next year.

Meanwhile, the Bank of England’s closely watched policy Decision Makers Panel Survey showed that British businesses over the past three months reduced their expectations for sales price increases but predicted wage growth would remain high.

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