Summer's acceleration in output growth unfortunately a 'flash in the pan' moment for the UK..
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| The Purchasing Manger's Index (PMI) battle between the EU & UK matters. Here's what it is and why.
PMI is a key leading indicator economic health. Above a score of 50 is expansion and below 50 is contraction. The overall figure is called the 'composite', which is a weighted blend of both manufacturing and services activity.
The UK is predominantly a services nation. This means the economy relies heavily on consumers spending money. When this slows, our country doesn't really have a fall back solution to prop up the economy.
The Euro-Zone is obviously going to be multifaceted because of the many countries involved. However, manufacturing is the main contributor to the overall economy of Europe with Germany the key.
The UK has held a consistent lead over the EU for many years now and it's a variable investors and traders have got accustomed to which helps in GBP's value over the EUR. Here are the yearly averages -
2020 - UK 48.4 v EU 48.1 2021 - UK 58.3 v EU 57.6 2022 - UK 50.5 v EU 50.4 2023 - UK 50.2 v EU 49.4 2024 - UK 50.4 v EU 50.0 2025 - UK 51.3 v EU 50.8
The problem right now and for the future of this particular battle are manifold;
- The UK will be lowering its interest rate and the EU won't be - The EU has fixed its inflation issue and the UK hasn't - Manufacturing results and confidence are gaining strength in Europe - Consumer spending and confidence is only going lower in the UK
The EU only seems to beat the UK 2/3 times a year on PMI over the last 5-years. This year it has been twice (February & September) with 3-months to go. But, these next 3-months are very 'dodgy' to say the least for the UK, whereas it should be business as usual for the EU.
Therefore, the PMI future poses a major headwind for Sterling IF, the EU is able to swing the pendulum. |
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