Formal Brexit letter could reflect in surveys

POUND’S PLUNGE

Economists polled by Reuters expect the PMI for the dominant services sector to tick up to 53.5 in March from February’s five-month low of 53.3. That reading suggested faltering consumer spending was starting to bite and pointed to first-quarter economic growth of around 0.4 per cent — compared with 0.7 per cent in late 2016.

“U.K. PMIs for March, especially once combined with the February industrial production, construction and trade data should leave us with a very good feel for 1Q (first-quarter) GDP by the end of the week,” Morgan Stanley economists wrote. “Overall, we expect the data to point to some slowing.”

Official data on Friday showed the services industry, which accounts for about two-thirds of Britain’s economy, contracted in January for the first time since March of last year.

Other recent data has also suggested British consumers are becoming more cautious.

Sterling’s fall since the Brexit vote has kept manufacturing activity near 21/2-year highs since the turn of the year, but recent surveys have suggested higher input prices are hitting new orders in the construction sector. The pound has lost nearly a fifth of its value against the U.S. dollar.

Manufacturing accounts for around 10 per cent of the British economy, with construction making up another six per cent.

Britain’s economy last year defied forecasts that it would slow sharply after the referendum decision to leave the EU, instead expanding faster than most of its developed world peers.

PMIs for France and Germany are forecast to hold steady after last month’s sparkling performance, although economists at Commerzbank saw limited potential for further gains.

“The PMIs ... are now at a level seldom surpassed since monetary union was established,” they said in a note.

“They only rose considerably higher in 2006 and in 1999/2000, during the New Economy boom. However, at that time the euro zone economy also expanded by more than three per cent, which seems highly unlikely to happen now.”

How a quickening economy will play into France’s presidential election, the first round of which is on April 23, is unclear. Far-right leader Marine Le Pen champions economic nationalism to counter the forces of globalization, while frontrunner Emmanuel Macron, a pro-EU centrist, promises gradual tax cuts and budget discipline. Conservative François Fillon wants to reduce the role of the state in the French economy.

Thursday will see the release of minutes of the ECB’s March policy meeting and speeches by both ECB president Mario Draghi and Bundesbank chief Jens Weidmann, who called again on Monday for a “less expansive” monetary policy.

When overall inflation hit the ECB’s two-per-cent target last month, conservative countries like Germany piled pressure on Draghi, calling for an end to the bank’s 2.3-trillion euro ($3.3 billion) asset buying scheme.

But a tumble in March to 1.5 per cent may have vindicated Draghi’s cautious stance.