UK PMI set to bounce back

Tomorrow, the Markit UK PMI for August will be released and data is expected to come in higher than the July release.

Yet the indicator should again remain below 50 for the second consecutive month. Although having been on tenterhooks since the Brexit vote, UK data has surprised in recent weeks and shows no signs of slowing in activity.

In our view, Brexit fears were and are still largely overestimated. UK adhesion to the EU was, before the vote, already subject to many conditions which will not dramatically change the future of the island. From our vantage point, the BoE is likely to stay on hold at the September meeting, which will be held one week before the Fed meeting. Indeed, UK GDP rose 0.6% in the second quarter and the central bank will likely await additional data before further easing. The cable has further upside room to appreciate and we should not see the pound go below 1.30 dollars. The Brexit vote has been positive in terms of helping the BoE to devalue the currency. As a result, policymakers have gained some time to further adjust their strategy.

Politically speaking, it would be a very bad move, from Theresa May to now trigger any fear that a Brexit will not happen as it is in the country’s interest to hold on to their weaker currency. This is why the UK prime minister continues to hold firm on her position that the Brexit vote result must be respected. We remain skeptical however and will only believe it once article 50 is triggered.

Yann Quelenn – Market Analyst – Swissquote