“Union International”: Sobering news from the UK services sector and a sharp dip in sterling herald a rude awakening for IMF’s ‘golden boy’.
According to Union International, the United Kingdom is likely headed for a rude awakening as further economic data emerged showing that the largely credit-driven recovery may be running out of steam.
A highly-respected and closely-watched gauge of the country’s services sector which accounts for as much as 80% of its gross domestic product (GDP) showed that economic expansion had slowed to a 19 month nadir. The Markit Purchasing Manager’s Index (PMI) posted a reading of 55.8 against a November number of 58.6.
Solomon Roth, chief economist at “Union International” explained; “Any number over 50 indicates expansion of the economy but the sharp loss of momentum represented by the drop from 58.6 to 55.8, in our view, shows that the recovery highly wasn’t of sufficiently high quality to be sustainable since it was almost entirely driven by consumer credit.”
At its height, the UK recovery prompted the IMF to describe the country’s economy as the fastest-growing in the G7, the world’s top 7 economic powers. The Markit data sent the pound sterling sharply lower against the US dollar but “Union International” quickly dismissed suggestions that the fall could be blamed on the data.
“The fact is that the US dollar is particularly strong every currency right now thanks to misguided expectations of an interest rate hike from the Federal Reserve at some point in 2015. This latest Markit info suggests that the Bank of England will have more reason to postpone any hike in UK rates. Frankly, with an election looming, we’re less inclined to hold the pound than we were this time last year,” concluded Roth.
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