UK services PMI much stronger than expected

September 5, 2016

Last week’s good data from the UK continued this morning; UK August services PMI came in much stronger than expected at 52.9. ВВ in the headline business activity index, up over five points from July’s post-Brexit vote nadir of 47.4. This is the largest month-on-month gain in the 20-year history of the data series, and follows the record 4.9 point drop between June and July. At 52.9, the heading reading is the best since May, but remains below the long-run average. The volatility and uncertainty caused by the Brexit vote clearly reflected in these wild monthly swings. New work rose at the fastest pace in four months, with companies reporting that the weak pound has helped win new business, including from tourism, along with returning confidence following the initial disruption caused by the vote to leave the EU. Job creation also resumed, while input price inflation rose to a 33-month high on the back of the weaker pound. With the construction and manufacturing PMI surveys having shown a similar rebound from July weakness, the composite PMI worked out at 53.6 in August, up from 47.6 in July. The data suggest the UK economy will avoid recession in Q3. The blot on the horizon is the exit negotiation process the UK has to undergo with the EU.

Cable continues to rally on the news. It failed to hold the 1.3300 level on Fridays close, but this morning GBPUSD is now trading well north of this key psychological level atВВ 1.3350.ВВ ВВ Should it hold above 1.3330 then the Daily chart shows short term resistance atВВ 1.3400ВВ and support atВВ 1.3115.

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