September UK flash services PMI 49.2 vs. 50.0 expected


  • Before 50.9
  • Manufacturing PMI 48.5 vs. 47.5 expected
  • Before 47.3
  • Composite PMI 48.4 vs. 49.0 expected
  • Before 49.6

UK economic activity is set to decline at its fastest pace since January 2021 as cost pressures remain elevated and demand conditions ease. This arguably confirms that the economy is already in a (technical) recession and while the outlook remains rather bleak, it’s hard to see how all of this will bring much comfort to the Pound and the BOE in the months ahead. S&P Global notes that:

“The UK’s economic difficulties worsened in September, with a drop in business activity indicating that the economy is likely in recession. Businesses are reporting that the rising cost of living, linked to the crisis of the energy, and growing concerns about the outlook are dampening demand and reaching levels of production to an extent not seen since 2009 except the pandemic lockdowns and the initial shock of the 2016 Brexit referendum.

“Meanwhile, the forward-looking indicators deteriorated further in September. Both the new orders and future expectations gauges have fallen to levels that have rarely been weaker in the past, and are consistent with a worsening slowdown as we head into the fourth quarter.

“Inflationary pressures continue to be higher than at any time in the two decades of survey history before the pandemic. New supply constraints, soaring energy prices and rising import costs associated with the weaker pound are adding to cost pressures, meaning the overall rate of inflation

Inflation

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country based on the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.

Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country based on the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
Read this term reported will remain a major concern for policymakers at the Bank of England. However, the adverse impact of policy tightening on a recession is becoming increasingly apparent, with the downturn likely to intensify as winter approaches.


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