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Pound buoyed by services sector bounce

06 June 2018

The pound rose sharply against the dollar and euro on Tuesday (5 June) as new data from May showed an unexpected surge in the UK’s services sector, which accounts for more than three-quarters of the nation’s GDP.

UK heading towards GDP growth

The Markit/CIPS services purchasing managers’ index (PMI) showed a reading of 54 last month, up from 52.8 in April in an index where any reading above 50 indicates growth, and well above of market forecasts of a 52.9 return.

Publication of the index came on the heels of May’s PMI for manufacturing, which also came in well above economists’ expectations, while the construction PMI showed growth in the sector was steady if unspectacular.

“May’s services report increases our conviction that GDP growth will recover in Q2 following weather-related weakness in Q1,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“The weighted average of the manufacturing, construction and services PMIs in Q2 so far is consistent with only a 0.3 per cent quarter-on-quarter rise in GDP. But the PMIs didn’t fully capture the slowdown in Q1, so they probably are understating the subsequent rebound.”

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