UK PMIs beat expectations to boost the Pound ahead of election day

Sam North, analyst at investment platform eToro, says: “This week is pivotal for the UK as the general election is taking place tomorrow. Given this significant event, recent economic data might take a backseat until the election result is in.

“Still, the Composite and Services PMI have now recorded eight consecutive months above the 50 mark, indicating expansion. Both figures surpassed expectations, giving the pound a slight boost. As long as the PMI remains above 50, sentiment should stay positive. However, a dip below 50 next month would signal contraction and potential concern.

“This data suggests the UK is on track for GDP growth in the second quarter, albeit at a slower pace than the 0.7% growth seen in the first quarter. While input cost inflation decreased in June, prices in the UK service sector remain high, with some companies leveraging strong pricing power to raise fees. Wages have been a significant factor in services inflation, but the ongoing economic recovery from late 2023 also plays a role, potentially encouraging more companies to increase prices.

“Labour is anticipated to secure a majority win, and the market has already accounted for this outcome. Consequently, the Bank of England’s rate projections are unlikely to shift. However, any unexpected results from Thursday night’s election could induce market volatility and prompt adjustments.”