The UK PMI construction index dipped to 50.4 for November from 53.2 the previous month and below consensus forecasts of 52.0. Although there was a small increase in new orders, overall business confidence declined to a 30-month low and, excluding the initial pandemic period, this was the weakest level of confidence since 2008. Net price pressure eased on the month, but remained elevated in historic terms, especially with an important impact from higher energy prices. Overall confidence in the UK outlook remained very weak with further concerns that consumer spending and investment would be damaged by high energy costs while strike action hurt sentiment. Sterling was also undermined by weaker risk appetite as equities retreated, although the UK currency did demonstrate some resilience and there was also some buying into the London fix amid underlying position adjustment into the year-end period.
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Relatively narrow ranges prevailed for much of Tuesday with no major data releases during the day on either side of the Atlantic, although volatility increased later in the day. ECB council member Herodotou stated there will be further rate hikes, but added that rates are very close to a neutral rate. At this stage, markets expect that the central bank will increase interest rates by a further 50 basis points at next week’s policy meeting, although there is still an element of uncertainty.
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10.00 Gross Domestic Product (QoQ) (Q3) Exp. 0.2% Prev. 0.2%
10.00 Gross Domestic Product (YoY) (Q3) Exp. 2.1% Prev. 2.1%
As far as next week’s Federal Reserve policy decision, markets are also expecting a rate increase of 50 basis points and any deviation from these expectations will have an important impact on exchange rates. The Democrats won the run-off in Georgia and will therefore have control of the Senate with a majority of 2. The overall US trade deficit widened to $78.2bn for October from a revised $74.1bn the previous month with a monthly decline in exports while imports increased.
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