British pound gains a little ground on positive UK services PMI rise

British pound gains a little ground on positive UK services PMI rise

The British pound gained ground against the US dollar earlier Thursday, both before and after the release of the December services PMI. Data experts IHS Markit reported services sector activity grew at the fastest pace since April 2017. The details behind that rise, however, were mixed.

By 1050 BST, the British pound was trading at $1.3552. That’s up from the $1.3539 cable was at just ahead of the data release. It’s also above the $1.3545 the pair hit in the immediate aftermath of the data publication.

Data point to solid Q4 GDP

Markit’s December services sector PMI rose to 54.2 from November’s 53.8. The December survey was also the 17th straight month in which service sector activity has expanded in the UK. The upbeat end to 2017 indicates UK GDP grew at a healthy clip in the final quarter of the year, Markit said.

“December saw a welcome upturn in service sector activity, highlighting the continued resilience of the economy as 2017 came to an end,” said Chris Williamson, IHS Markit’s chief business economist.

“Alongside the solid expansion seen in manufacturing and modest construction sector upturn, the survey data are consistent with the economy having grown 0.4- 0.5% in the fourth quarter of 2017,” Williamson added.

The PMI gain was supported by improved business optimism among survey respondents. Some 43% of those surveyed anticipate increased levels of business activity during 2018.

Signs of caution

While the overall index level rose in December, other elements of the survey were a little less positive than in November.

New business and employment growth were both slower than in November. And, while price inflation was faster – both on prices paid and charged – the survey noted signs that businesses were working to reduce operating costs. That’s something that likely weighed on staff hiring plans.

“Trends in hiring and business investment in fixed assets such as offices are showing signs of deteriorating, as is expenditure on IT, computing and other business services as worries about Brexit result in delayed spending decisions,” Williamson said.

“Rising price pressures are meanwhile also hurting consumer facing companies in particular,” he added.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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