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Sterling experienced a broad surge on Thursday, fuelled by better-than-expected PMI data, suggesting the UK economy is on course for solid growth in the third quarter. The flash composite output index climbed to a four-month high of 53.4 in August from 52.8 in July, surpassing the forecasted figure of 52.9. The services business activity index increased to 53.3 from to 52.5 in July, exceeding the expected figure of 52.8.
(UK Flash Composite PMI Data)
(UK Flash Service PMI Data)
In August, service sector growth also hit a four-month peak, while manufacturing output rose at its fastest rate in 26 months, according to the survey. Overall, business activity showed unexpected strength, as a strong recovery in the dominant services sector offset a deeper decline in manufacturing.
This optimistic economic outlook emerges as inflationary pressures ease, a situation that would typically pave the way for further rate cuts by the BoE. However, the strong economic performance allows the BoE to adopt a more cautious approach before enacting additional cuts. Overall, November presents an opportune moment for such decisions, as the BoE will have updated economic forecasts by then.
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