UK Services price pressures intensified even as growth slowed, leaving the Bank of England facing an awkward choice after last week’s rate hold.
The British Pound Sterling slipped against the Euro and US Dollar on Wednesday as weaker UK business surveys failed to dislodge Pantheon Macroeconomics’ forecast for a November interest-rate hike.
The Pound to US Dollar exchange rate (GBP/USD) fell 0.41% to 1.3288, taking September’s decline to 1.92%, while the Pound to Euro exchange rate (GBP/EUR) eased 0.13% to 1.1640.
The flash composite PMI fell to 51.7 from 52.5, below expectations of 52.0, with services recording the same readings.
Manufacturing’s headline index improved to 52.0, although its output component weakened.
Pantheon sees enough economic resilience for the Bank of England to respond to rising prices:
“It’s a hawkish combination for the MPC and keeps a November rate hike on track.”
That would follow the BoE’s 6-3 decision to hold rates at 3.75% last week.
Services prices sharpen the policy dilemma
The services selling-price balance jumped to 58.2 from 56.9, its highest since May.
Pantheon says that signals underlying services inflation above 4.5% on a three-month annualised basis, compared with the latest official reading of 3.7% on that measure.
It cautions that the survey may exaggerate energy’s impact:
“That said, we would take the latest price balance moves with a pinch of salt.”
On growth, the PMI alone suggests a 0.2% quarterly expansion, but Pantheon retains its 0.4% third-quarter forecast, matching the BoE.
The survey has recently understated initial GDP estimates:
“The PMI would point to 0.4% quarter-to-quarter growth in Q3 if it makes the same error again.”
Pantheon expects growth to slow to 0.1% in the fourth quarter as Budget uncertainty weighs on activity, with Tuesday’s borrowing overshoot adding to the Chancellor’s difficulties.
Our currency coverage draws on live market data, official economic releases and published bank research.
