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Is the UK facing a recovery slowdown?

Is the UK facing a recovery slowdown?

UK Construction has slowed to its weakest level in the last nine months; Markit Construction PMI data printed at 55. Although the figure still showed growth it was below market expectations of 57.5. Markit economist Tim Moore said construction firms were struggling for momentum, with increased economic uncertainty holding back new orders and contributing to one of the weakest rises in output levels since summer 2013.

Sterling was on a weak footing ahead of the data as it fell below 1.44 levels versus the US Dollar amid risk aversion in the European equity markets. The weaker than expected construction PMI figure only added to the bearish tone around Sterling.

In advance of Thursday’s Bank of England (BoE) interest rate decision Bloomberg have published an article discussing the possibility of a UK Rate Cut. Traders aren’t pricing in a rate hike until at least 2018. With GDP only having grown by 2.2 percent in 2015, much slower than the BoE’s November forecast of 2.7 percent, combined with annual wage growth below predictions at 2 percent, it could point to a slowdown in the recovery. Although Mark Carney is unlikely to state any other than “we’ll wait and see” tomorrow, we can’t rule out looser monetary policy having crossed his mind.

The Eurozone jobless rate unexpectedly declined to a four-year low in December – 10.4 percent from 10.5 percent in November. Although European Central Bank policy makers are urging governments to do more to strengthen their economies and lower unemployment whilst the central bank is considering additional monetary stimulus, this news may only affect medium-term thinking. The labour market hasn’t fully recovered since the recession and jobless rates remain above 20 percent in Greece and Spain.

China services PMI hit a six-month high as economists noted that fast development of the services sector has to a large extent offset the impact of weakening manufacturing, indicating a better economic structure.

The economic calendar is interesting today with the final reading of the EMU services PMI, the EMU retail sales, US ADP employment report and US non-manufacturing ISM.

Data to watch: 9am EUR Markit Services PMI, 9.30am UK Markit Services.1.15pm US ADP Non-Farm Employment. 3pm US ISM Non-Manufacturing PMI.

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