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UK to dodge the recession bullet?

Is the UK set to dodge the recession bullet? This is the subject dominating discussion following a strong UK services PMI this morning, and something that could have a huge impact on exchange rates.


(In case you don’t know, the UK services PMI is a monthly measure of productivity in the UK services industry. It accounts for two thirds of economic output in Britain, and so is crucial in determining UK growth.)

This month UK services took market forecasts, chopped them into small chunks with onions and carrots, fried them, and ate them for dinner. The PMI hit 56.0 (releases above 50.0 mean growth and the higher the better.) This compares to 54.0 the month before, and expectations of a slowdown to 53.5. It’s a 10 month high for UK services, and the biggest single jump on record. Great!

Of course, before this, economists thought Britain would soon be re-entering recession. The economy contracted -0.2% last quarter, and there’s been nothing to suggest better. But this PMI has come on like a milkshake spiked with prozac: it has left economists all smiles and sunshine. Hence the question: is the UK set to dodge the recession bullet?

Outside the UK, European leaders continue to act as though international politics were a Marx Brothers film.

This week they agreed a fiscal union, including promises to balance their national budgets. This is intended to prevent a debt crisis emerging again. But before the ink had dried on the signatures even, Italian Prime Minister Mario Monti was calling the union “an important distraction.” After all it does nothing to end the present crisis.

In addition, debt negotiations in Greece continue to cause nervousness.

Though public officials have sworn again and again to be but moments from signing a debt agreement with their creditors, no such deal has emerged. Indeed, it seems negotiations remain at step one, following demands from investors for more public spending cuts last night. Given the recession in which Greece finds itself, you can imagine officials didn’t fall over themselves to comply!

Given these euro zone trials then, it would make sense that the euro has lost ground this week, right?

But in fact, the common currency has held all but firm against the pound, as investors take hold of any good news they can from Europe and run with it. Looking ahead, I expect more of the same.

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Peter Lavelle is an economist at foreign exchange broker Pure FX. For a free no-obligation quote regarding changing currencies, get in touch at foreign exchange specialist Pure FX.

Copyright: Peter Lavelle, Pure FX
Category: Expats
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1 Comment for “UK to dodge the recession bullet?”

  1. That’s a good comment, Peter.
    You say “investors take hold of any good news they can” and I hear “managed market”.

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