With the quid still under the cosh following last week’s dismal GDP reading, traders are going to be looking even closer at the next batch of data
This week sees three PMI releases for the UK. Starting with manufacturing today, an improvement is not expected as the PMI is forecast at 54.8 vs 55.1 prior. This index bucked the weather trend by rising a pip last month. While there will be a lot of focus on these PMI’s (and mainly the big services PMI on Thursday), there’s more important data to watch for signs of real underlying problems in the economy. As we mentioned after last week’s GDP, the weather only played a small part in the drop to 0.1% GDP. If the economy is flagging then today’s BOE consumer and business borrowing numbers will become the more important data to watch.
If there’s a real squeeze coming on households, borrowing numbers is where we’ll see the problems arising. Today we get March data along side the PMI. Last week we had similar data from industry group UK Finance but this only accounts for bank data. The BOE numbers today cover banks and building societies (which are the biggest mortgage lenders). The UK Finance data should credit card lending of only 10m vs 320m in Feb. Mortgage lending was the highest since Dec at 1.758bn. Lending to non-financials rose to 3.241bn vs 1.168bn prior. All together, not a bad lloking set of numbers, and they don;t flag any problems. BOE consumer credit today is set to come in at 1.450bn vs 1.647bn prior. Within that, credit card lending stood at 648m vs 741m prior. Out of total lending, SME’s rose 699m vs -704m prior.
It’s these consumer and SME numbers that will flag any major worries in the economy. If households are getting squeezed, credit card lending will shoot up. If businesses aren’t doing well borrowing can drop but conversely, it could rise rapidly signalling that companies need to borrow to cover rising debts. Unfortunately, one set of numbers won’t be decisive so watching the data more closely over the months ahead will be important.
For now, GBP traders will just want something positive to get the May hike expectations rising again but it’s going to take a hell of a lot to reverse the current sentiment, and that means a very strong rebound in the data. If that doesn’t come then the quid will sugger further but with hike hopes already right out the window, the downside might be a bit less volatile.
Given the price action so far today, and yesterday, look for the price to stay between the 1.37 & 1.38 big figs, barring any massive swings in the data.