PMI prints in UK and Euro area 'underwhelm'

UK

The latest PMI figures out of the UK were underwhelming, to say the least, with business activity slumping into contraction this month, albeit only a very modest one, for the first time since October 2023. We see this as a direct consequence of the Autumn Budget announcement, with the large hikes to employer National Insurance contributions seen squeezing company profits, while triggering job losses and raising consumer prices.
Sterling has fallen sharply off the back of the data, briefly dropping below the 1.25 level on the dollar this morning. This is partly a consequence of markets racing to price in an additional rate cut from the Bank of England, which is now seen delivering three 25 basis point cuts over the next twelve months, up from just two prior to the data.

Euro area

The Euro Area economy appears to be heading towards contraction as we approach year-end, at least according to this month’s business activity composite PMI, which slumped to its lowest levels since January.

Businesses across Europe seem to be acutely concerned about the risks posed by president-elect Trump’s radical tariff proposals. This could weigh particularly heavily on the common bloc’s economy in the next few years, given that it relies on US demand for around 4% of its GDP.

Today’s data will be a major cause for concern for policymakers in Europe, and we are likely to see greater pressure on the ECB to deliver aggressive interest rate cuts in the coming months in order to support the bloc’s economy.

This could easily entail a jumbo 50 basis point rate cut at the Governing Council’s December meeting, which is now roughly 60% priced in by markets, a repricing that has triggered a collapse in EUR/USD below the 1.04 level this morning.