Sterling slides as recovery slows

published 8 January 2015

The latest UK economic data showed the rebound losing some steam. The monthly PMI survey of the services sector, which comprises 80% of Britain's GDP, showed activity slowing to its lowest level in 19 months in December.

This followed similar disappointments in surveys of the manufacturing and construction sectors; momentum in the latter is down for a third successive month to a 17-month low. Car sales enjoyed their best year in a decade in 2014, however.

Mortgage approvals have continued to dip, but demand for credit card debt has surged in the past three months the biggest uptick since before the credit crunch. Sterling has fallen to its lowest level against the US dollar since mid-2013.

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What the commentators said

Dig a bit deeper into the services survey, and there is better news. Employment has expanded for two years on the trot now, and wages are finally starting to rise, which bodes well for consumption.

It's a pity consumers seem to be returning to bad old habits though, said Alistair Osborne in The Times. Maybe "maxing out on plastic" really is a sign of economic confidence. But then, that's what people were saying in 2007. "Loadsa living the lifestyle back then."

Meanwhile, the global picture, especially the eurozone, is looking increasingly uncertain, added The Independent's James Moore. The occupant of 11 Downing Street may be starting to feel twitchy. "This is no way to be starting an election year." The election is also unusually unpredictable, which won't exactly help overall confidence.

The slowdown in growth and low inflation points to interest rate rises later rather than sooner. The election, which could well be inconclusive, is also likely to rattle foreign investors, added Morgan Stanley who have also noticed that the UK has a huge current-account deficit. Expect sterling to stay "under sustained pressure" over the next few months.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.