Europe & Russia: August 2016

Economic overview

Uncertainty continues to cloud the UK economy in the wake of the EU referendum vote.

The UK’s future relationship with the EU remains uncertain following the Brexit vote. There are also uncertainties regarding the outlook for the country’s economy. In early August, the UK’s service PMI for July was revealed to have fallen to 47.4. Not only does this mark contraction for the sector, it is also the fastest decline since March 2009. The UK’s service PMI was 52.3 in June. The Bank of England cut interest rates to a record low of 0.25% at the start of August. This is the first interest rate change in seven years and follows months of speculation about a potential rise in the rate, which was 0.5% before the cut. The Bank of England also announced a new quantitative easing package at the start of August.

One of the most immediate impacts of the referendum on the country’s gas market has been the decline of the pound, which has forced up the cost of imports. If the UK is more dependent on imports this winter, the weak pound will make winter gas supplies more expensive.

The eurozone is so far weathering the uncertainty of Brexit, with performance improving in July. The eurozone’s composite PMI was 53.2 in July, up from 53.1 in June. There were some signs of a divergence between the north and the south, however. Germany’s composite PMI reached a seven-month high of 55.3 in July, whereas in Italy the figure fell to a two-month low of 52.2 while in Spain it dropped to a 32-month low of 53.7. Employment figures across the region also showed signs of improvement, but uncertainty over Brexit means there are still risks ahead. The outlook for gas consumption from the major markets has not been hit, and as long as the region’s economic performance is strong gas demand is expected to continue to grow over the coming months.