GBP sinks after PMI, recession now more likely in the UK

[MongiIG]

Sterling had a good start to the day after it became obvious that Rishi Sunak will become the next UK prime minister, but things then turned sour.

 Jeremy Naylor | Writer, London | Publication date: Monday 24 October 2022

PMI data for services, manufacturing and the composite number all shrank making it now more likely that the UK will enter recession. IGTV’s Jeremy Naylor looks at the pound and the London indices.

 

Sunak as new UK PM

As we went into this Monday, we were fully expecting Rishi Sunak to become the new Prime Minister of the UK.

That now looks almost a certainty as Boris Johnson has pulled out and Penny Mordant doesn't look like she's got the number of votes needed. So it looks like a coronation for former chancellor, Rishi Sunak.

GBP

As a result of that, we saw a positive sterling trade, but then all things went pear shaped because we got some economic data which showed the PMI data coming in far weaker than had been expected.

All these numbers are less than 50. Fifty is the point at which it becomes contraction to expansion. Anything below 50 is a contraction. And we've seen services down below expectations of a 47.5 reading, manufacturing looking for 47.5. We've got 45.8 and the composite number coming in at 8-basis points below estimates of 48.

So you can see contraction across the board, and we’re now penciling in a full recession which has seen sterling pull back.

GBP/USD

If we take a look at what's happening with sterling against the US dollar you can see it's still being supported by this rising line of support. We're currently trading at 11,287.

For those brave we would still go long on sterling at these levels, despite the fact it's lost ground today after having seen a print of a one week high on expectations of the success of Rishi Sunak going through to the job of Prime Minister.

GBP/EUR

It's the same sort of trade against the euro. We are technically down on the trading day today. There was this gap up to begin with and we have been a lot higher than where we are at the moment.

Again, same sort of price action because of what happened with that PMI data taking the shine off Rishi Sunak's potential first day in office.

FTSE 100, FTSE 250

The FTSE 100, after lifting itself initially to a high not seen since the 6th of October, is now down by half of 1%. You can see we have been a lot lower than that, but I think one of the other trades to watch out for is the domestically orientated FTSE 250 index.

Now that's down that, it's down off the highs, but it is technically still up three quarters of 1% on the trading day, despite the effects of the red candle, We did see a big leap at the start of today's trade on expectations, but there was now this political certainty.

But I think the real trading day, the shine’s been taken off it because of that PMI data indicating recession is now almost certain in the UK economy.