UK Construction PMI data printed at 47.0 versus expectations of 46.9 and a reading of 46.2 the month prior indicating that the housing sector is improving albeit at a very slow pace. Construction remained below the key 50 boom/bust line for the 22nd consecutive month but has effectively leveled out at the current levels for the past six months.
UK housing sector, a critical component of the country’s economy, appear to have stabilized with prices slowing rising over the past several months but activity remains well off the highs set in 2007. Record low interest rates and ultra easy monetary policy by the BOE have eased credit conditions, but organic demand remains elusive given lack of growth in the overall UK economy. UK is one of the few G-10 nations with a negative GDP in Q3 of 2009 and remains a laggard in growth relative to the rest of industrialized nations.
Despite the relatively neutral economic data, pound has continued to perform well tonight, rallying above the 1.6600 level once again as risk flows were mildly supportive. Some market analysts noted that cable may be benefiting month end corporate flows in EUR/GBP which are creating a temporary distortion in price sterling itelf. We continue to view the rally in cable with skepticism and believe the unit is vulnerable to a correction if tomorrow’s UK PMI services data disappoints.
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