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UK composite PMI climbed to 51.1 in October, fuelled by strong manufacturing output.
Last week finally delivered a dose of optimism for the UK economy after a long period spent mired in defeatism. Inflationary pressures look to be retreating (both for households and businesses), with Friday bringing positive news from retail, services and particularly the manufacturing sector.
While still technically contracting, flash PMI data from manufacturers came in at 49.6 in October, marking the slowest pace of contraction in a year. Producers were given a jolt by revived domestic demand, while a lower cost of goods brought welcome relief. Combined with stable consumer confidence, this was evidence that business conditions were “starting to improve”, S&P’s report said.
Sterling experienced a couple of falls last week on the back of softer inflation data that prompted markets to revisit their interest rate predictions. At first, some were pricing in another quarter-point cut for November, but Friday’s strong sector releases saw most predictions shift to December or February.
If the Labour party was tempted to feel the clouds had lifted, the outcome of the Caerphilly by-election was a reminder of the amount of progress still needed. Plaid Cymru outduelled Reform to take the Labour heartland seat for the first time in its history, a vote that could signal a seismic political realignment.
The UK steps out of the spotlight this week as a busy period for the eurozone takes over. The eurozone will report preliminary economic growth for the third quarter on Thursday. A few hours later, the European Central Bank will announce its latest interest rate decision. Currency markets are anticipating a third consecutive hold.
In the United States, the Federal Reserve is expected to announce its second quarter-point interest rate cut on Wednesday evening. The view is that policymakers will choose to address clear weaknesses in the labour market and hope that accelerating inflation proves temporary.
There are also some trade negotiations to keep an eye on this week. First, EU officials will meet their Chinese counterparts in an attempt to insulate the bloc from President Trump’s tariff regime. Across the Atlantic, Trump angrily called off negotiations with northern neighbour Canada over an anti-tariff ad on Canadian TV, which featured conservative hero Ronald Reagan.
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GBP: Adjustment period
Wednesday was one of those odd days where good news for the UK economy meant bad news for the pound. Sterling would recover from its early stumble, but there is no mistaking the change in tone within markets. To many, rate cuts are back on the menu, presenting the pound with another downside risk.
GBP/USD: the past year
EUR: A big week begins
Germany, Italy and France join the eurozone as a whole in reporting economic growth statistics this week. Alongside another interest rate decision, the euro could see heightened volatility this week, particularly if Christine Lagarde says anything that might suggest a change in monetary policy down the line.
GBP/EUR: the past year
USD: Inflation brushed aside
After a shutdown-induced delay, markets decided to see the glass half-full in September’s inflation report. Headline inflation advanced by less than expected to 3% (vs. 3.1% expected), but core inflation unexpectedly cooled to 3%. The US dollar weakened to end last week as investors became increasingly bullish about the prospect of rate cuts.
EUR/USD: the past year
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