Pound Sterling (GBP) Threatened after Poor UK Services Data

Modified: Friday, 4 March 2016 17:02 BST - Written by Minesh Chaudhari

STORY LINK Pound Sterling (GBP) Threatened after Poor UK Services Data

Disappointing British Services Growth Weighs on Pound Sterling (GBP) Exchange Rates

In the medium term, analysts forecast that the performance for the Pound Sterling (currency : GBP) will be determined by the ongoing possibility that the UK will be leaving the European Union; however, day by day, British data releases continue to have a short term effect.

This fact was evidenced by February’s edition of the Markit/CIPS Purchasing Manager Index survey of the UK Services sector, published earlier today. Investors place great store on the monthly release by dint of the fact that the tertiary sector comprises almost three quarters of the UK economy, meaning its good health is vital for the UK.

FX insiders had been anticipating that this morning’s result would reveal only a slight decline in the pace of expansion of Britain’s combined services industries – when the result showed a dip from January’s showing of 55.6 to a relatively lowly 52.7, the Pound took a hit. With a result of below 50.0 in any PMI survey pointing to declining activity levels, analysts now fear that March’s counterpart result may show that this key element of the UK economy is shrinking – a result which could augur the beginnings of another domestic recession.

Considering the figures, Chris Williamson of Markit observed that, ‘the weaker increase in services activity mainly reflected a slower expansion in the volume of incoming new business.‘ He went on to add that, ‘survey responses reveal that firms are worried about signs of faltering demand, but boardrooms have also become unsettled by concerns regarding the increased risk of 'Brexit', financial market volatility and weak economic growth at home and abroad.’

Political Uncertainty Continues to Pressure Sterling

Up to this point, the shift out of Sterling-denominated assets triggered by today’s data release has been remained limited for the time being, with the Pound euro exchange rate holding above the 1.2900 GBP EUR threshold.

However, the Pound remains firmly in the ‘danger zone’ and political analysts forecast that, given the weak services numbers, any opinion polls suggesting that UK voters might decide in favour of an EU exit on 23rd June could send the UK tender spiralling downwards.

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TAGS: Pound Euro Forecasts Pound Sterling Forecasts