- The British pound declined by 1% against the dollar after Markit released services PMI data for March.
- The services PMI declined to a historic low of 34.5 while the composite PMI dropped to 36.0
- The services and composite PMI also dropped in the rest of Europe, with Italy being the most affected
The British pound declined after a data from Markit showed that activity in the services sector declined to a record low in March. The UK services PMI declined to 34.5, which is the lowest number recorded since the survey started in March. The number was lower than the previously released flash PMI number of 35.7 and the February reading of 53.2. Additionally, the UK composite PMI dropped to 36.0 from the previous 53.0.
British pound falls after weak services PMI
In the statement, Tim Moore, a director at Markit said that:
“A record slump in UK service sector activity reported in March adds to the increasingly bleak economic statistics seen recently across the developed world. Emergency public health measures to combat the COVID-19 pandemic continue to mothball business operations, force aggressive cutbacks on non-essential expenses and trigger distress for household finances.”
UK 5-year services PMI chart
Services role in UK economy
The services PMI number came three days after Markit released the manufacturing PMI number. The data showed that output and new orders declined at the fastest rate since 2012. The PMI declined to 47.8, which was lower than the 51.7 reported in February.
Still, the number released today is more significant because of the role of the services sector in the UK economy. According to the Office of National Statistics (ONS), the sector represents more than 70% of the economy. It also employs millions of people ranging from cashiers to investment bankers.
The data shows how the UK economy has been impacted by Coronavirus, which has infected more than 33k people and killed almost 3,000 people. It could get worse. Just yesterday, British Airways, a company that employs thousands of people announced that it was suspending them. Other retailers like BrightHouse and Carluccio’s have filed for bankruptcy.
JD Sports, a leading retailer has said that it will not pay rent, which threatens the real estate sector. Others like the Mattress Firm and Cheesecake Factory have also said they won’t pay rent. Meanwhile, WeWork, the biggest tenant in London is facing existential threats after SoftBank announced it won’t fund it. This has seen big landlords like Intu have said that less than 30% of their tenants have paid rent.
Weak UK services PMI follows that of Europe
The UK is not the only country facing a slowdown in the services sector. Data from Markit showed that services PMI in Italy dropped to 17.4, the lowest number ever recorded. This happened since Italy was in lockdown for most part of March. Meanwhile, in Germany, the services PMI dropped to 31.7 after rising by 52.5 in February.
Overall, in the Eurozone, the services PMI dropped to 26.4 after rising to 53 in February. The composite PMI, which takes into account the manufacturing sector, dropped to 29.7 from the previous 51.6. The best performing country was Ireland.
In a statement, Chris Williamson, the Chief Business Economist at Markit said:
“The service sector is currently seeing an especially severe impact from the COVID-19 outbreak, with travel, tourism, restaurants and other leisure activities all hit hard by virus containment measures.”
British pound Technical Outlook
The British pound has been in consolidation mode against the dollar for the past few days. It has remained between 1.2478 and 1.2236. On the hourly chart, the pair is slightly above the 14-day and 28-day exponential moving averages while its volatility as measured by the Average True Range (ATR) has weakened. This could be a calm before the storm, which means that it could see significant moves ahead and after US NFP data.