UK Preliminary Manufacturing PMI drops to 48.0 beating estimates; Cable remains capped below 1.1700

The UK manufacturing and services sector activities returned to a contraction in March, the preliminary report from IHS Markit showed this Tuesday. 

The seasonally adjusted IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to a three-month low of 48.0 in March versus 45.0 expected and 51.7 – February’s final reading.

Meanwhile, the Flash UK Services Business Activity Index for March came in at a record low of 35.7 versus February’s final readout of 53.2 and 45.0 expected.

UK economy faces an initial blow greater than that seen at the height of the global financial crisis

Chris Williamson, Chief Business Economist at IHS Markit, commented on the survey: “The surveys highlight how the COVID-19 outbreak has already dealt the UK economy an initial blow even greater than that seen at the height of the global financial crisis. With additional measures to contain the spread of the virus set to further paralyse large parts of the economy in the coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely.”

"Historical comparisons indicate that the March survey reading is consistent with GDP falling at a quarterly rate of 1.5-2.0%, a decline which is sufficiently large to push the economy into a contraction in the first quarter. However, this decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter as further virus containment measures take their toll and the downturn escalates.”

FX implications

The crash in the UK Preliminary Services PMI did little to keep the GBP bulls at bay, as GBP/USD sustains the upward momentum. However, the spot remains capped below the 1.1700 level.

GBP/USD technical level to watch