Business activity in the UK under threat

On June 23, 2016 will be a Referendum on British exit from the EU. This fact already puts pressure on the British pound and forcing it to update its local minima. But the main macroeconomic factor that causes a decrease of the British currency, is a basket of indexes of business activity. It currently begins to play a key role.

The business activity indexes (PMI)

The main indicator of business activity is the PMI. It is a key indicator of the prospects of the national economy. These indexes, primarily, are compiled according to the polls/forecasts from the managers of big business in the country. Since economic and business information primarily falls into their hands, and only later in Bureau of statistics, as a rule, they are the first to know the perspective of the labor market, sales and the GDP. Factor in the reduction of business activity index (PMI) are generally negative expectations, among which for today is the same Brexit.

Business activity in the manufacturing sector

Fig. 1. Dynamics of the index of business activity in the manufacturing sector in the UK.

At the moment the index of business activity in the manufacturing sector is at a level of 50.8, which says about optimistic mood of the managers of this sector. But despite this, past data, reached the lowest level since may 2013. The gradual decline observed since December 2013.

Business activity in the construction sector

Fig. 2. Dynamics of the index of business activity in the U.K. construction sector.

Here the indicator remains at a steady level – 54,2, but this is the lowest value since August 2013. The construction sector the UK is on an optimistic note because of the real estate market, which recently demonstrated a boom, especially in major cities such as London, Manchester, Newcastle and so on. Except that in the event of a fall in the growth of construction real estate market, the UK can replicate the negative scenario of 2008 in the USA. Dynamics of indicators as we can see in Fig. 2 – is in a downward trend.

Business activity in services

Fig. 3. Dynamics of the index of business activity in the services sector in the UK.

The service sector is a key sector for the economy of the Kingdom. Here we have the indicator PMI is at a level was 52.7, which will be the least since may 2013. The threat to the service sector is the financial sector, which may suffer greatly because of positive results on Brexit. About 1,000 companies in the UK have a maternity capital from the EU, that promises its outflow in the event of a British exit from the EU.

Optimism vs. pessimism

It should come to a conclusion on what is happening around such indicators as business activity in the UK. Given the downward trend of the data, then we can expect the update lows and a possible decrease below the average of 50.0. In the case of this scenario, the British pound will continue to receive new and new factors for loosening.

In addition, there is one positive note – finding the data above 50 level. If you take the indexes of business activity in the market of the European Union or China, we observed the presence of these indicators below average, indicating that the decrease in business activity by business entities. Only still a touch of pessimism in the form of “June 23” will continue to put pressure on British bankers, managers and investors that are already thinking about reducing their investments and orders.

Business activity in the UK under threat 31.03.2016

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