British Pound (GBP) gains against the Euro but slips versus the US Dollar as Pantheon says resilient growth keeps a November BoE hike on track.
Pound Sterling traded unevenly on Monday as stronger-than-first-reported UK business activity reinforced Pantheon Macroeconomics’ expectation of a November interest-rate rise.
At the time of writing, GBP/EUR was up 0.19% at €1.1789, while GBP/USD slipped 0.19% to $1.3214.
The Pound also gained 0.15% against the New Zealand Dollar to NZ$2.3617, but fell 0.33% against the Australian Dollar to A$1.8967 and 0.20% against the Canadian Dollar to C$1.8830.
Pantheon’s assessment was clear:
“Resilient growth and sticky price pressures keep the MPC on track to hike in November.”
Growth slows less than initially reported
September’s final composite PMI fell to 52.0 from 52.5 in August, beating the preliminary reading and consensus forecast of 51.7.
The services index was revised to 52.1 from 51.7, also below August’s 52.5 but still signalling expansion.
“Growth continues to hold up surprisingly well in the face of high oil prices and mounting Budget speculation.”
Pantheon’s models put third-quarter GDP growth near 0.2%, based on the survey alone.
Allowing for its historical tendency to understate growth would lift that estimate to 0.4%, matching Pantheon’s and the MPC’s forecasts.
Services prices keep pressure on the Bank of England
The fastest rise in services selling prices since May complicates the policy outlook.
Pantheon says the survey points to underlying services inflation exceeding 4.5% on a three-month-on-three-month annualised basis, against the latest official reading of 3.7%.
“Still, the big picture remains one of inflation stuck above a target-consistent rate even before higher energy prices feed through to services, as firms protect margins.”
That supports the case for higher rates, although Monday’s mixed exchange-rate moves show that it has not translated into broad Sterling gains.
Pantheon also warns that fiscal uncertainty could weaken demand:
“The Budget drag on growth, however, seems to be ramping up, with reports that uncertainty over tax hikes will linger as decisions are delayed until next year.”
Our currency coverage draws on live market data, official economic releases and published bank research.
