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Business mood is turning sour
The past 24 hours have seen more worrying signs for the UK economy. The pound has looked like a softly deflating tyre this week against both the US dollar and the euro, with the dollar firmer across the board.
The clearest datapoint yesterday was the March purchasing managers’ index (PMI). The UK’s composite reading slipped to 51.0 from 53.7 in February — still in positive territory at over 50, but with business showing clear signs of slowing down.
In the US, the equivalent composite edged down to 51.4, an 11-month low, with firms pointing to rising energy costs. A surprise then, to see German manufacturing bosses at their most bullish for several years, with PMI rising to 51.7, far above expectations.
This morning’s inflation figure from the Office for National Statistics (ONS) was taken before the impact of the war in Iran. Although headline inflation remained stable at 3%, ‘core inflation’ rose unexpectedly to 3.2%. This is the reading with more volatile food and fuel taken out, so hardly a good sign for next month.
The big worry remains oil prices, with warnings of global recession if it stays high. The UK’s PMI report said that the rise in oil and gas prices has led to production costs at British factories rising at the quickest pace since Black Wednesday in 1992.
The oil markets are still listening out to messages from the White House, despite reports of insider trading and vast profits being generated around Trump’s various announcements.
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GBP: PMI reality check
Sterling weakened yesterday as the UK’s flash PMI cooled sharply. A composite PMI of 51.0 isn’t a disaster, but it’s a world away from February’s 53.7, and markets will see this sudden drop as a warning shot. The other sterling issue is energy costs. If they keep feeding into prices, interest rate expectations can support the pound one day and hurt it the next, depending on whether people focus on “higher rates” or “higher recession risk”. Coming up on Friday, retail sales and the GfK Consumer Confidence, both good barometers of consumer mood.
GBP/USD past year
EUR: Mood measures dominate markets
The euro was also a shade softer against the dollar yesterday. Europe’s big complication is the same one it always has in an energy shock: high import exposure, and not a huge growth buffer. Eurostat’s 0.2% quarterly GDP figure for late 2025 is a reminder that the underlying pace is still very gentle. Coming up shortly, the Ifo Business Climate reading and tomorrow the GfK Consumer Confidence reading.
GBP/EUR past year
USD: Safe-haven reflex returns
The US dollar finished yesterday on a firmer footing all round. Part of that is the continuing risk off mode and part the data. The US flash composite PMI at 51.4 was weaker than last month, but the commentary about rising costs can still keep the inflation conversation alive, and that often props the dollar up. It goes a little quiet for data the rest of this week, but news from the Strait of Hormuz is looking more pertinent right now anyway.
USD/GBP past year
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