Outrageous Predictions
Executive Summary: Outrageous Predictions 2026
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Trader Short: Cable steady as construction sector remains in the mire but gilt yields show direction
Neil Wilson
Investor Content Strategist
UK construction PMI points to more rate cuts this year with the sector in an absolute mess at the end of 2025. But easing inflation pressures and tentative signs of a post-Budget recovery should offer some encouragement. The survey noted sharp falls in housing, commercial and civil engineering activity and decline in new work and orders. On a more positive note, business activity expectations rebounded to five-month high despite weak orders as we can sense something of a relief following the Budget. Best of all input cost inflation eased to a 14-month low.
But sentiment appears very weak – hardly surprising since the election has heaped nothing but new regulation and costs and planning reforms have not materialised.
The PMI registered 40.1 in December, up from 39.4 in November, but still the second weakest since May 2020.
I still favour three cuts this year as economic activity appears to be slackening and inflation is cooling. The Bank of England has more work to do. Wage growth is levelling off, vacancies are cratering along with payrolls...no reason not to get on with cutting some more. 2yr gilt yields ticked lower on the day to 3.607%, while the 10yr yield fell about 9bps to below 4.4%, the lowest since November, suggesting the market is leaning into more easing.
Sterling is trading weaker vs the dollar after hitting a four-month high at the start of the week but actually ticked up a touch following the update. Yesterday saw failure to hold the breach of the 61.8% retracement of last summer’s pullback, which is around 1.3540. MACD turns negative but looking at possible golden cross as the 50-day SMA moves up to meet the mildly declining 200-day line. Looking to see if bears can hold the move back 50% retracement around 1.3460 with the rising trend support and 20-day come in just below.
But sentiment appears very weak – hardly surprising since the election has heaped nothing but new regulation and costs and planning reforms have not materialised.
The PMI registered 40.1 in December, up from 39.4 in November, but still the second weakest since May 2020.
I still favour three cuts this year as economic activity appears to be slackening and inflation is cooling. The Bank of England has more work to do. Wage growth is levelling off, vacancies are cratering along with payrolls...no reason not to get on with cutting some more. 2yr gilt yields ticked lower on the day to 3.607%, while the 10yr yield fell about 9bps to below 4.4%, the lowest since November, suggesting the market is leaning into more easing.
Sterling is trading weaker vs the dollar after hitting a four-month high at the start of the week but actually ticked up a touch following the update. Yesterday saw failure to hold the breach of the 61.8% retracement of last summer’s pullback, which is around 1.3540. MACD turns negative but looking at possible golden cross as the 50-day SMA moves up to meet the mildly declining 200-day line. Looking to see if bears can hold the move back 50% retracement around 1.3460 with the rising trend support and 20-day come in just below.
Meanwhile traders seem to be looking at a potential rapprochement in UK-EU trade relations as delivering some upside and we continue to monitor whether EURGBP can break the 200-day moving average support. Meanwhile, data this morning also showed Eurozone inflation falling to 2% from 2.1%, hitting the ECB's target. With everything going on and a modest growth outlook for the bloc, will the next move really be to hike?
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