Sterling fell against the dollar yesterday after the Purchasing Manager’s Index (PMI) showed the construction industry was growing, however at a slower pace than forecast for the month of June. Construction growth was forecast at 55.0 but instead slowed to 54.8, down from a seventeen-month high the previous month. In addition, weaker than expected manufacturing growth figures on Monday halted the bullish run seen towards the end of last week and over the weekend for Sterling.
The disappointing growth figures for both sectors are likely to dampen hopes for a rebound in the UK economy in the second quarter and have made it increasingly unclear whether interest rates will be raised at the next MPC meeting in August.
The uncertainty surrounding a rate hike has come after comments from other Bank of England officials show the division within the MPC on monetary policy. MPC member, Gertjan Vlieghe has retained his dovish stance on keeping rates at their historic low; insisting that it would be wrong to raise borrowing costs at a time of slowing consumer spending. However, Ian McCafferty who was among the three members on the MPC to vote for a rate rise from 0.25% to 0.5%, He said at last month’s meeting it would be “prudent” to increase borrowing costs.
Many analysts will now be looking towards the services PMI data release today, as it is viewed as a better indication of the economic performance.
In political news, pressure on Prime Minister Theresa May is mounting. A report published yesterday revealed the extent of public sector pay freezes which has given the Labour opposition’s a strong case to argue against the 1% pay cap on public staff implemented by the Tories. A reduction in austerity measures were also backed by senior Conservative MPs, showcasing vulnerability in the Prime Ministers position.
09:30 – GBP– Services PMI; Forecast at 53.6 against a previous of 53.8
19:00-USD- FOMC Meeting Minutes