Is the Recession in the UK Starting?

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The latest construction PMI report from the UK printed a recessionary reading of 46 versus 50.6 which was expected before the release. This is down from 51.2 which was the reading of the previous month.

Markit’s Purchasing Mangers Index data has been a good leading indicator of recessions in the past, and the last time the construction PMI was so low in the UK was during the financial crisis of 08 – 09.

Certainly, Brexit plays a huge part in the gloomy report for the construction sector as investments were held off before the referendum and now with the “leave” camp winning the uncertainty kicks in.

The services PMI report also printed lower than expected number, with an actual 52.3 versus the 53.1 expected reading. This is down from the previous month’s reading of 53.5.

Now the services sector is close to the tipping point below 50 which would indicate a contraction.

The reports only confirm the bearish view on sterling that most currency analysts have after the UK voted to leave the European Union. Most FX traders are now in the mode of positioning for a recession in the United Kingdom, and this should keep the pound under pressure.

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