The UK services PMI for the month of March was released today beating estimates and coming at a three-month high. The news was welcomed, especially after manufacturing and construction PMIs fell short of expectations earlier in the week. The services sector is the prime contributor to UK Gross Domestic Product.
Looking at the actual figure for Markit/CIPS services PMI, that stood at 55.0 as opposed to the 53.5 expected by analysts. The number was also an improvement over February’s 53.3. In terms of market reaction, the British pound jumped to its highest for the day relative to the dollar upon release of the data to reach $1.2489. Before the release, pound / dollar traded at 1.2432. Versus the euro, sterling experienced a similar gain. The British currency is up for the day against both the dollar and the euro.
Despite the upbeat number, not everything was positive as the report showed services companies increased their selling prices at the fastest pace since 2008. This adds to worries of inflation rising beyond acceptable levels, something which is already taking a toll on consumer spending according to some analysts. Another warning sign is the fact that hiring by businesses occurred at the slowest pace in seven months.
Taken together, the three PMI reports (services, manufacturing and construction) point to economic growth of 0.4% during the first quarter. This would constitute the weakest growth in a year and is significantly below the 0.7% experienced in the fourth quarter of 2016.
Finally, one member of the Bank of England’s Monetary Policy Committee voted for a rate increase during the Bank’s latest policy meeting. Despite this, markets currently expect the central bank will maintain its key rate at a record low 0.25% throughout the year as it attempts to boost the UK economy ahead of Brexit-related uncertainty, especially after the nation triggered Article 50 on March 29 to officially commence negotiations to exit the European Union.
Origin: XM
