The private sector's business activity in the United Kingdom (UK) expanded at its fastest pace in eight months in October, with the S&P Global Composite Purchasing Managers' Index (PMI) rising to 53.1 from 52 in September. This reading came in better than the market expectation of 51.8.
In this period, the Manufacturing PMI rose to 52.8 from 51.9, while the Services PMI improved to 53.1 from 52.1. Both of these prints surpassed analysts' estimates.
Commenting on the report's findings, "the UK economy has picked up momentum in October, with early PMI data indicating the strongest rate of growth since February," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "This encouraging sign of economic resilience is underscored by firms taking on additional workers for the first time since hiring was hit by the 2024 Autumn Budget," Williamson added.
Market reaction to UK PMI data
Despite the upbeat PMI data, GBP/USD struggles to gain traction and trades at around 1.3380, losing about 0.1% on the day.
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
(The story was corrected on October 23 at 09:16 GMT to note that the Composite PMI in the UK improved to 53.1 from 52 in September, not October).
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.