LONDON (Reuters) - The pound strengthened on Thursday even after dire UK preliminary PMI readings for April fell far below even the most pessimistic forecasts, as market activity appears immune to new data about the disastrous economic fallout from the coronavirus.
The IHS Markit/CIPS Flash UK Composite Purchasing Managers’ Index (PMI) fell to a new record low of 12.9 from 36.0 in March - not even close to the weakest forecast in a Reuters poll of economists that had pointed to a reading of 31.4.
The scale of the collapse all but guarantees a huge contraction in the world’s fifth-largest economy and will add to doubts about whether financial help from the government has reached businesses quickly enough.
“The survey really doesn’t tell us anything more than what we know already from looking out of our windows these days,” said Bert Colijn, a senior economist at ING.
Colijn added that because PMI is a diffusion index, negative answers simply indicate that things are worse than the previous month, rather than showing how much worse, meaning that it does not show the full depth of the crisis.
Versus the in-demand dollar, the pound was up 0.2% at $1.2351. Against the euro, which also saw worse-than-expected PMI data on Thursday morning, the pound was up around 0.5% at 87.35 pence.
As the UK’s lockdown measures limit people’s ability to live, work and spend money like normal, economists expect the country to see its worst economic contraction in more than 300 years.
The UK’s gross domestic product will contract 13.1% this quarter, according to the median forecast in a Reuters poll of nearly 80 economists conducted April 15-22 and published on Thursday. That would be the biggest quarterly drop since World War Two.
Also on Thursday, leaders of European Union countries will meet to discuss the EU response to the crisis - negotiations which have so far been hampered by disagreements on how to finance aid to help the worst-hit economies, such as Italy.
It may take until Summer, if not longer, to reach an agreement, an EU official said on Wednesday.
“Hardly anyone expects any concrete decision today apart from tough debates and declarations of solidarity, as the countries are going to request further negotiations and time to think,” wrote Commerzbank FX analyst Antje Praefcke in a note to clients.
“The summit is nonetheless relevant. If the parties part on bad terms without showing any willingness to compromise, that would be a bad sign for the euro,” she said.
Reporting by Elizabeth Howcroft; Editing by Giles Elgood