Pound Sterling Could be in for a Positive PMI Surprise on Tuesday

Pound week ahead dominated by PMIs

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The key economic reading for the British Pound in the coming week lands on Tuesday morning at 09:30 when S&P Global's PMI numbers for February land.

The figures will give the first reliable snapshot of economic activity for February, and given how reactive exchange rates are to data at present, the Pound could be swayed by the outcome.

Market expectations show the bar to meet or beat is 48.7 for the composite edition, 49.2 for services and 47.4 for manufacturing.

This is against January's respective readings of 48.5, 48.7 and 47, confirming a market that expects an extension of the slowdown.

The rule of thumb is that disappointment will result in Pound Sterling weakness, and an improvement will be met by strength.

"Sterling might recoup some of its recent losses against the dollar if February's flash UK service PMI comes in better than expected," says Robert Howard, a Reuters market analyst.

Economists at TD Securities are expecting such an upside surprise.

"We look for notable improvements in the UK PMIs in February, largely due to the much better economic outlook," says a daily note from the bank's analysts.

TD Securities forecasts a 1.2-point increase in the manufacturing PMI to 48.2, on the back of further improvements in the output and new orders components.

The bank also expects the services index to jump "all the way to the neutral 50.0 threshold for the first time since September 2022".

The Pound could be in for a bump higher if the calculations at TD Securities prove correct and the UK economy performed better than many were expecting in February.





However, the majority of economists are more sanguine, in line with a market that expects further evidence of an economic slowdown.

Barclays expects the services PMI to move sideways as it reads at 48.7, giving a sub-50 level owing to the squeeze in disposable incomes from high energy bills and mortgage rates.

They expect headline manufacturing to tick up slightly to 47.5, albeit to still comfortably contractionary levels, as the easing of supply chain pressures likely acted as a tailwind to output.

This would bring the composite PMI to 48.6 which would be consistent with Barclays' view of a small contraction in GDP in Q1.

UniCredit expects the flash manufacturing PMI to rise to 47.5 in February.

"In January, both the output and new orders indices rose but remained well in contractionary territory. The future output index posted a strong recovery in the last two months, but significant headwinds remain amid tighter monetary policy," says a weekly economic analysis from UniCredit.

The services PMI is meanwhile forecast to be broadly unchanged at 48.9 in February.

"Consumer confidence has fallen, the squeeze in real disposable incomes continues and the effects of higher interest rates on non-essential spending are building," says UniCredit.

Ross Walker, an economist at NatWest, says the PMI surveys are forecast to remain firmly in recessionary territory in February.

For the Composite index, NatWest forecasts a decline to 48.0 from 48.5, weighed down by a further deterioration in the services index (48.2 from 48.7).

This would reflect ongoing strike disruption and the lagged-but-rising drag from monetary tightening.

The British lender meanwhile forecasts the manufacturing PMI to remain at 47.0 in February.

"Having rebounded from a distinctly soft 45.3 in December, further meaningful gains may prove difficult at this point," says Walker.