Yesterday saw Pound Sterling under renewed pressure as UK Services PMI data missed expectations with a disappointing figure of 50.2. For the first time since late 2012, Britain’s economy has shrunk as worries about Brexit continued to weigh on the pound, and has been further compounded by global trade tensions and the overall state of the global economy.
This comes a day after Bank of England Governor Mark Carney warned about the growing risks from a no-deal Brexit. 50.2 is a particularly worrying figure to many as it is only just above the no-growth level of 50. Similar surveys earlier in the week in manufacturing and construction also saw contraction, showing poor performance in all sectors of the economy.
In the aftermath of Carney’s speech on Tuesday, the yield curve between two and five year British government bonds inverted for the first time since 2008, suggesting market investors see a recession as a distinct possibility. We are also seeing increased probability on a cut to the headline interest rate figure, as signs are showing that the economy may require additional support to cope with the shock of a no-deal Brexit, or an escalation in global trade tensions.
The greenback suffered on Wednesday after new orders for U.S. made goods fell for a second straight month. This is the latest in a consistent pattern of poor manufacturing data which points to continued weakness in the U.S. economy. The U.S. trade deficit also jumped to a five-month high, likely due to stockpiling of Chinese goods ahead of the increase in tariffs on Chinese merchandise.
A slowdown in housing, manufacturing, business investment consumer spending and a labour market faltering are signs that the overall economy is beginning to stall. This could prompt the Federal Reserve to cut interest rates as a way of revitalising the health of the economy.