British pound up on UK Sept services PMI, outlook remains muted

British pound rises as UK September services PMI indicates activity was string in September than August. All-sector PMI implies Q3 GDP growth of 0.3%, but outlook suggests slower growth in Q4.

British pound up on UK Sept services PMI, outlook remains muted

The British pound rose a little against the dollar Wednesday, as the UK’s services sector grew at a faster clip in September than August. IHS Markit’s services sector Purchasing Managers Index (PMI) rose to 53.6 in September, up from August’s 11-month low of 53.2.

However, while the index edged higher, service sector activity across the whole of the third quarter was slower than the second, the survey data shows. And, a further slowdown in momentum is anticipated due to another slowdown in new business growth and ongoing price pressures from the weak pound.

“The services sector saw another month of modest growth,” said Chris Williamson, IHS Markit’s chief economist. “The three PMI surveys put the economy on course for another subdued 0.3% expansion in the third quarter, but the fourth quarter could see even slower growth.”

UK Q2 GDP growth was confirmed at 0.3% by the ONS in September, which suggests the economy could have held steady from the April-June period. However, the PMI only measures activity across the UK’s private sector, so doesn’t give the complete picture.

And that is a worry. Particularly as the Bank of England currently seems set on a course of raising interest rates, possibly as soon as it’s November rate-setting meeting.

The British pound headed higher against the dollar on the news that the services PMI indicated a stronger performance for the key sector in September.

But, the details of PMI report don’t make the most comforting reading for the future performance of the sector that accounts for 80% of the UK’s economy.

Business confidence fell in September, keeping that measure close to the 2011 low. Meanwhile, input prices for service providers rose, which were passed on to customers.

“The rise in price pressures will pour further fuel on expectations that the Bank of England will soon follow-up on its increasingly hawkish rhetoric and hike interest rates,” Williamson said. Adding that the decision will likely prove a tough one for the BOE due to the weaker outlook for economic growth.

As of 11:15 BST, Wednesday, 04 October, GBP/USD share price is 1.3117.

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