Brexit Uncertainty Takes a Toll On UK Construction Sector

Brexit Uncertainty Takes a Toll On UK Construction Sector
October 3, 2019


The pound fell sharply yesterday after IHS Markit data indicated contraction of the UK construction sector as Brexit uncertainty caused sluggishness in demand. However, the pound bounced back strongly after the US private-sector job growth fell below analysts’ estimates. From the opening high of 1.2313, the GBP/USD pair fell to a low of 1.2226 before rebounding to day’s highest level of 1.2317.

The IHS Markit / Chartered Institute of Procurement & Supply construction Purchasing Managers’ Index declined to 43.30 in September, while the figure was anticipated to remain unchanged at August’s 45.0. Notably, the reported number represents the second biggest contraction since April 2009.

Joe Hayes, an economist at IHS Markit, opined that the UK economy’s performance was again dependent on the service sector, which partially offset the weakness in the construction and manufacturing sectors. Among all three segments, the commercial industry was the worst performer in September.

Furthermore, construction activity declined at nearly the fastest rate in a decade, and residential building construction recorded its fourth consecutive month of decline.

On the whole, the construction sector demand declined in September after posting a sharp decrease in March 2019 in August. As consumers refrained from spending due to Brexit uncertainty, there were no signs of recovery.

Several companies resorted to job cuts due to weak demand. Specifically, job cuts recorded its strongest level since 2010. Additionally, for the sixth month in a row, staffing levels fell. The input prices, on the contrary, continued to increase strongly due to higher fuel expenses and supplier fees for some raw materials.

Going forward, the UK construction firms were slightly positive that output volumes would increase over the next 12 months.

The employment report released by payroll processor ADP signaled a slowdown in the US job market, with job additions failing to meet economists’ expectations in September. ADP, in its report, stated that private sector added 135,000 jobs in September, compared with economist expectations for an increase of roughly 140,000 jobs. The report also showed a considerably downward revision to the jobs added last month. The original figure of 195,000 jobs was slashed to 157,000.

Regarding the weak job additions, Mark Zandi, chief economist of Moody’s Analytics, said, “Businesses have turned more cautious in their hiring.  If businesses pull back any further unemployment will begin to rise.”

In the service sector, the economy added 127,000 jobs, with significant job additions in education and health services, transportation, trade, and utility sector.

The report also stated that the goods manufacturing sector added 8,000 jobs, led by increased employment opportunities in the construction sector but partly offset by loss of jobs in the mining industry.

ADP also stated that job additions at large industries increased by 67,000 jobs, while employment at medium and small businesses grew by 39,000 jobs and 30,000 jobs, respectively.

Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, pointed out that the average monthly job growth for the last quarter has declined to 145,000 from 214,000 in the same period the previous year. The weak economic data from the UK and the US is expected to keep the GBP/USD pair range-bound in the short-term.

Technically, the GBP/USD pair has formed a near double bottom at 1.2220. However, the momentum indicator remains flat. As a result, we can anticipate the currency pair to remain range-bound between 1.22 and 1.23 levels in the short-term.

GBP - technical analysis - 3rd Oct 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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