Pound hits 31-year low after disappointing service sector data

Sterling tumbled to a 31-year low against the dollar and oil dropped below $50 a barrel as concerns deepened over the impact of Brexit on the UK economy.

Fears that a collapse in demand for new construction projects will turn into a panic spooked investors, depressing shares in housebuilders and property companies. Although the FTSE 100 was 0.4% higher, at 6547, the domestic-focused FTSE 250 mid-cap index tumbled more than 400 points, or 2.7%, to 15,680.

Adding to the gloom was a closely watched survey of the services sector, which showed a worse-than-expected reading of 52.3 in June, down from 53.5 in May. A reading above 50 indicates growth.

Sterling extended its decline after the survey, falling more than 1% to hit a 31-year low of £1.3112 at one stage. This is below the level of £1.3118 reached on Monday 27 June in the wake of the referendum result .

The Markit Cips purchasing managers’ index (PMI) for the services industry covers almost 80% of the UK economy. The growth figure of 52.3 was the lowest for three years, as new business weakened and firms used their spare capacity to tackle backlogs.

Markit said the results reflect the “intensified” anxiety over Brexit in the runup to the referendum. Almost 90% of the data was collected before the result of the poll.

Chris Williamson, chief economist at the survey compiler Markit, said a recent run of survey covering manufacturing, construction and services showed that the pace of UK economic growth slowed to just 0.2% in the second quarter, losing further momentum in June as Brexit anxiety intensified.

“A further slowing, and possible contraction, looks highly likely in coming months as a result of the uncertainty created by the EU referendum,” he said.

“However, with the June PMIs having already fallen into territory that would normally be associated with the Bank of England cutting interest rates, it’s unlikely that policymakers will feel the need to wait for more data before unleashing additional monetary stimulus. More policy action is therefore likely following the Bank’s monetary policy committee’s next assessment of the economy on 14 July,” he said.

Property and building shares began falling on Monday after Standard Life closed its £2.9bn commercial property fund to redemptions as investors panicked about the uncertainty created by the EU referendum result.

Housebuilders Taylor Wimpey, Berkeley and Barratt were all among the biggest fallers in the FTSE 100, losing more than 4% along with Land Securities, Britain’s largest commercial property developer.

Tuesday’s declines followed plunges in housebuilders’ shares immediately after the referendum vote, which wiped more than a third off some companies’ values in two days.

Persimmon, Britain’s biggest housebuilder, published a trading statement that said its business was largely unaffected by the Brexit vote, although the group said it was too early to make a definitive call. Its shares fell 4.3%.

Fund managers were also hit by fears following Standard Life’s announcement with Standard Life down 4.6% and Schroders falling 5.7%. The biggest loser was Legal & General, whose shares dropped 6.1%.

Powered by Guardian.co.ukThis article was written by Phillip Inman and Sean Farrell, for theguardian.com on Tuesday 5th July 2016 11.58 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010


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