Pound climbs on strong services data release

Added 5th September 2016

The pound clawed back more of the ground lost following the referendum on European Union membership this morning after the release of strong services sector data.

Pound climbs on strong services data release

Markit’s Business Activity Index rebounded to 52.9 in August, from 47.4 in July, sending sterling up 0.3% to $1.333.

A reading of 50 means levels of activity have remained the same, so the reading for August indicates activity has swung significantly from a notable contraction immediately following the Brexit vote to an expansion.  

“A record rise in the services PMI adds to the encouraging news seen in the manufacturing and construction sectors in August to suggest that an imminent recession will be avoided,” said Chris Williamson, chief business economist at Markit. “It remains too early to say whether August’s upturn is a dead cat bounce or the start of a sustained post-shock recovery, but there’s plenty of anecdotal evidence to indicate that the initial shock of the June vote has begun to dissipate. Many companies are seeing business return to normal either simply by customer confidence rising or a stoic determination to “Buck Brexit” and carry on regardless.”

“Business confidence has rebounded strongly in the UK following the initial shock of the vote to leave the EU," added Adrian Lowcock, investment director at Architas. “The figures follow on from strong manufacturing PMI figures last week. Both indicate the UK is moving from contraction into expansion. However, investors should be careful of reading too much into the confidence figures as they are likely to have overshot as businesses gave a sigh of relief that things did not turn out as bad as expected.”  

Dean Turner, economist at UBS Wealth Management, expressed similar cautious optimism.

“Today’s improvements are in line with the string of robust economic figures we’ve seen throughout August,” he said. “But, while there is some reason for optimism today, it’s still too early to conclude that the UK has escaped the Brexit vote unscathed. “We still expect growth to slow to zero in the second half of the year, although the current quarter may be a little stronger than anticipated, followed by greater weakness in the fourth quarter.”

“Now that we’ve seen some resilience in the UK economy, many are questioning whether last month’s Monetary Policy Committee decision was the right one,” Turner continued. “We believe the Bank of England has taken the correct course of action and expect them to ease further before the year is out.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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