The British Pound remains supported by firmer UK growth, although UK economists note easing price pressures are making further Bank of England rate hikes less likely.
Britain’s dominant services sector returned to growth in July, strengthening the case that the economy entered the third quarter with more momentum than June’s weak surveys had suggested.
The final S&P Global/CIPS services PMI rose to 52.1 from 48.8, beating the flash estimate of 51.8.
The composite PMI climbed from 49.3 to 52.2, its first expansionary reading since April, as new orders improved and business optimism reached its strongest level since before the Iran conflict began.
UK economists at Pantheon Macroeconomics described the overall signal as “remarkably healthy”, particularly as the survey covered a period when the price of oil traded above $85.
“If the PMI can improve while oil prices are running above $85 then we should expect further gains in August if the latest moves to reopen the Strait stick,” Rob Wood, Chief UK Economist at Pantheon said.
That assessment is not entirely out of step with the official figures.
UK GDP expanded 0.7% in the three months to May, with services also growing 0.7% and accounting for most of the increase.
May itself recorded 0.1% growth after April’s 0.1% contraction.
Pantheon estimates the July PMI is consistent with quarterly GDP growth of around 0.2%.
The survey’s forward-looking measures were also better.
The future activity balance rose to 66.1, while new orders reached 51.0, their strongest level since February.
Pantheon said the figures were “consistent with the August composite PMI improving to 52.6”.
UK Economic Outlook: Growth Improves, Inflation Still Too High
The awkward part for the Bank of England is that stronger activity has not yet been matched by comfortably low inflation pressure.
The services output-price balance fell from 57.6 to 55.6, but Pantheon noted that this was still close to the 2025 average, “when underlying services inflation was too strong to deliver at-target inflation”.
There were also signs that employment remained weak.
Pantheon estimates the survey points to an 11,000 monthly fall in private payrolls, although it cautioned that the PMI “has been overly downbeat in recent months”.
The Bank has held Bank Rate at 3.75% while stressing that the effect of volatile energy prices will depend on how long the shock lasts and whether it feeds into domestic wages and prices.
Its latest published guidance said inflation was expected to rise again as higher energy costs passed through the economy.
The economist’s conclusion is therefore less hawkish than the growth figures alone might suggest.
“We are comfortable assuming Bank Rate on hold through end-2027 still, but the PMI suggests rate hikes are becoming less likely,” it said.
For Pound Sterling, that is a mixed but broadly steady message: the economy is avoiding a sharper slowdown, but easing price pressure may gradually reduce the yield support that has helped underpin GBP exchange rates.
Our currency coverage draws on live market data, official economic releases and published bank research.
