UK economists forecast stronger-than-expected UK growth while warning that underlying services inflation remained too high.
The Pound to Dollar (GBP/USD) exchange rate climbed 0.34% to around $1.3529 on Thursday, recovering from an earlier low of $1.3481.
The Pound to Euro (GBP/EUR) exchange rate slipped 0.06% to €1.1631 after surrendering its afternoon gains.
Pound Sterling comfortably outperformed against the Dollar, while GBP/EUR ended the session marginally below its opening level.
UK Growth Set to Beat BoE Forecast
The S&P Global/CIPS composite PMI rose from 52.2 to 52.5 in August, matching the flash estimate and signalling another month of private-sector growth.
The services PMI increased from 52.1 to 52.5, although this was below the preliminary reading of 52.8.
Pantheon Macroeconomics said: “Growth is on track to beat the MPC’s forecast, again, in Q3, and underlying inflation remains too strong.”
Pantheon estimates that the July and August surveys are consistent with quarterly GDP growth of 0.2%, slowing from 0.4% in the second quarter but exceeding the Bank of England’s 0.1% forecast.
Its forward indicators point to the composite PMI easing to 51.7 in September, which would still signal steady growth despite higher energy prices and renewed Budget uncertainty.
Services Inflation Keeps BoE Pressure Alive
The services output-price balance rose from 55.6 to 56.9.
Pantheon said this was consistent with underlying services inflation accelerating to approximately 4.0% on a three-month annualised basis, compared with the latest official reading of 3.7%.
S&P Global reported that “service providers widely commented on the need to protect margins from elevated payroll costs and ongoing supplier surcharges.”
Employment conditions also improved, with the composite jobs balance reaching its highest level since October.
The figures strengthen the case for the Bank of England to maintain a restrictive policy stance and may offer Sterling some support.
The next tests for the GBP/USD exchange rate will come from Bank of England Governor Andrew Bailey’s remarks and Friday’s US employment report.
Our currency coverage draws on live market data, official economic releases and published bank research.
