Pound to Dollar Rate Eroded by UK Construction Supply Squeeze

Pound to Dollar Rate Consolidates Gains

The pounds impressive gains against the dollar last week – a period that saw it touch a three-week high – were eroded slightly on Monday. The damage was done by fresh data showing supply chain issues continue to cause problems across the UK.

Britain’s construction sector was sluggish in August, growing at its weakest pace since the lockdown in the early part of this year. The slowdown was prompted by a severe shortage of building supplies which have risen sharply in price, a survey showed on Monday.

The IHS Markit/CIPS Construction Purchasing Managers’ Index (PMI) dropped to 55.2, its lowest reading in six months and down from 58.7 in July. The composite PMI – which combines the construction PMI with PMIs released last week for the services and manufacturing sectors – also sunk to a six-month low at 54.9, down from 59.2 in July.

According to Usamah Bhatti, an economist at IHS Markit: “Supply chain disruption continued to disrupt activity across the UK construction sector, as demand for materials and logistics capacity outstripped supply,”

Retail spending jumped last month, a survey from the British Retail Consortium (BRC) showed overnight, rising 3% in August compared with a year ago, with clothing stores performing strongly. However, the BRC highlighted that this represents a slowdown from annual growth of 6.4% in July.

According to BRC Chief Executive Helen Dickinson: “As post-lockdown pent-up demand has softened, the growth in retail sales we have seen over the past few months slowed for August. Nonetheless, we still saw growth above pre-pandemic levels, as people returned to stores in greater numbers,”

The pound vs dollar rate continued to meander its way through 1.38 territory overnight and into this morning, having risen above the benchmark towards the end of last week.

Dollar benefits from fading growth momentum

The dollar recovered some of the losses it sustained against the pound on Friday following the poor US jobs report – which showed the number of new jobs created last month in nonfarm sectors increased by the smallest amount since January – as concerns about slowing global growth enhanced its safe-haven appeal.

Looking ahead

Investors in the pound must wait until Friday for the next notable data from the UK economy: Manufacturing Production, Industrial Production, and Gross Domestic Product – with the latter forecast to show the UK economy expanded 8% year-on-year as the pandemic recovery remains on track. Before then, several other data sets are slated for release, including the RICS Housing Price Balance on Wednesday.

Investors in the dollar must wait until Thursday for the first influential release of the week from the US economy, when Initial Jobless Claims for the week ended 3 September land. Before then, the latest JOLTs job openings data from US is slated for release on Wednesday, with the number of job openings expected to remain high as the nation’s labour market recovery from the pandemic endures.