April 23, 2020 / 8:27 AM / a month ago

Sterling holds steady before UK flash PMI data for April

* Graphic: World FX rates in 2020 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, April 23 (Reuters) - The pound was flat on Thursday before the release of preliminary UK PMI data for April, which is expected to show a sharp decline in economic activity as the coronavirus lockdown brings British business to a halt.

Flash PMI data, due at 0830 GMT, is expected to show manufacturing and services activity slowed as the coronavirus lockdowns left the UK facing its worst economic contraction in more than 300 years.

Last month’s data showed Britain’s economy is shrinking at a record pace, faster than during the 2008-09 financial crisis. Unlike the data for March, the UK was in lockdown for the whole of the period covered by April’s reading.

However, the PMIs are likely to under-estimate the damage to the UK economy, RBC analysts said.

“It is worth recalling that the PMI index shows only the balance of firms experiencing a reduction in activity,” they wrote in a note to clients.

“What it doesn’t tell us very much about is by how much those firms are scaling back, which is why they are likely to understate the true extent of the impact that the current crisis is having on UK and euro area GDP,” they said.

The dollar continued to climb, as it has every day this week, even after the promise of more U.S. government aid to cushion the coronavirus-ravaged economy helped calm nervous markets somewhat. In early London trading, cable was down 0.1%, at $1.2325.

Versus the euro, the pound was up around 0.1% at 87.65 pence .

The median forecast in a Reuters poll of nearly 80 economists conducted April 15-22 was for gross domestic product to contract 13.1% this quarter. 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 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.

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