Yesterday UK PMI (Purchasing Managers Index) Service figures were released and made for fairly grim reading. They showed a contraction down from 55.3 last month, to 53.3 this month. This set of data is considered key for the UK, as the services sector makes up two thirds of the UK’s economic output. This proves that whilst Europe does seem to be suffering on a grander scale, the UK still has a long way to go until it returns to economic stability.
There was further bad news as a report released by The National Institute of Economic and Social Research (NIESR), predicted that the current UK unemployment rate will rise from its current rate of 8.3% to almost 9% by the end of the year and could do “permanent damage to the UK’s productive capacity”. It also predicted growth would be close to Zero and if this ends up being the case, then I feel GBP will be handicapped against the single currency to some extent over the coming months.
However, these figures are not yet official and even if they were, 9% unemployment, whilst clearly a major concern, is dwarfed by Spain’s (24.1%) and Greece (21.7%) and in my opinion the threat of contagion within the Eurozone is the biggest fear factor amongst EU leaders and private investors alike.
A move through 1.24 within the coming weeks is not out of the question but any further negative data in the UK, coupled with a more structured European economic plan, could see rates snap back to the 1.20 region as quickly as they have moved beyond it.
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