Construction PMI nears dangerous area, GBP slips


UK construction PMI falls much more than anticipated nearing dangerously a contraction area
Housing activity deteriorates the most since the Brexit vote entering contraction  
EURGBP could be eager to keep on rising as the price has bounced back from a crucial support zone
UK construction neared dangerously a contraction area in the first month of 2018 as the PMI gauge slipped from 52.2 to 50.2 while the consensus had indicated just a tiny decline to 52. Keep in mind that a 50 points barrier is viewed as a crucial line which divides economic expansion from contraction. The British pound accelerated its decrease following the reading, however, the pound had not performed well already prior to the release.

UK construction PMI follows its manufacturing counterpart and begins the year with a drop.
The details of the Markit survey appear to be yet more discouraging. First and foremost, housing activity shrank from 55.3 reported in December to as low as 48.1, the lowest point since the Brexit vote in July 2016. It means that the sector of house building slipped into a decline ending simultaneously its 16-month long expansion. On the positive site, commercial building came back to growth, reversing a six-month period of a decline, however the pace of expansion was only marginal according to Markit.

What could be a telling part of the report, the rate of job creation cooled off to an 18-month low, which albeit seems to accord with the reduced growth of building activity. Another paltry part of the release are new orders received by UK construction companies which decreased subtly for the first time in four months. As previously, worries related to general political and economic uncertainty were among the most often cited reasons. At last, one cannot leave out constantly intense input costs being chiefly driven by materials such as bricks, copper and timber - it could also cut back on companies’ margins going forward.

The EURGBP looks as if it has already defended its crucial support area placed at around 0.8720. Having assumed a short-lived comeback of the greenback the cross could take a stab at creeping up toward 0.90.