We had said throughout much of the doom and gloom running up to January’s Bank of England meetings that it was important to look at the surveying period for much of the data coming out, and bear in mind the effects of the last parliament’s inability to pass a Brexit deal and the subsequent general election and what that meant for industrial activity in the UK.
Now that survey data is falling on the post-election period, we’re starting to see a rebound in data. The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) rose to 53.9 January, the highest print since September 2018, up a point on its preliminary reading and up from its 50.0 reading in December. The IHS report noted that January’s PMI surveys gave a clear signal that the UK economy has picked up since the general election, as a diminishing headwind from political uncertainty translated into rising business and consumer spending.
In addition, the composite PMI of services and manufacturing output indexes, rose to 53.3 in January, upgraded from the initial flash reading of 52.4 and a strong rebound from December’s 49.3 print.
So has this improved UK data, a more stable political landscape, diminishing talk of a rate hike, and the UK having finally left the EU resulted in a huge surge for the pound? Well…no. Gains in the near-term have been limited, with GBP falling on the wrong of global risk sentiment against USD and EUR pairs.
UK DIRECTION UNCERTAINTY REMAINS
While the UK may now be out of the EU, it is still a long, long way from arriving at the point where we have a clear picture of the kind of trading relationship that it will have with the rest of Europe. The press have already dubbed next week’s Cabinet reshuffle by Boris Johnson as the “Valentine’s Day Massacre”, and are looking to the Prime Minister’s selection of Ministers as a signal of his attitude towards ongoing trade negotiations. However, it’s probably not worth putting too much stock in the build up to next Friday. Boris Johnson has been far from shy about voicing his views on the kind of global trading Britain that he would like to see post Brexit. The issue isn’t what he wants, but what is achievable and what scorned European policymakers are willing to concede that will be key for GBP direction.
THAILAND FIRST TO TAKE BANK ACTION ON CORONAVIRUS
There’s no lack of projections about the effects of Coronavirus on the global economy being bandied about at the moment, but Thailand was the first this week to take monetary policy steps as a result of the outbreak.
Overnight the Bank of Thailand cut its headline interest rate by 25 basis points to 1.00 percent, a record low. The country experienced an exports slump through 2019 on weak Chinese demand, and with tourism accounting for a fifth of the Thai economy and China accounting for a quarter of visitors, the outbreak of Coronavirus stands to give Thailand’s GDP a serious hit.
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