UK Services Are Set To Drive The Growth And Boost Sterling On Holiday-thinned Independence Day

• The UK services PMI is expected to remain unchanged at 54.0 in June, becoming the top economic sector to drive the growth.
• The UK manufacturing PMI rose to 54.4 in June, but the performance of the sector remained relatively subdued in June, especially when compared to the marked pace of growth seen before the turn of the year.
• Holiday-thinned Wednesday could see higher demand for Sterling pushing it past 1.3200 level in case the services PMI beats. 

The UK services sector is expected to remain strong with relatively solid growth rate as the services purchasing managers’ index (PMI) from IHS/Markit is expected to remain steady at 54.0 for June, the report is scheduled to reveal on Wednesday, July 4th.

Although the IHS/Markit is a private survey conducted on a smaller sample of companies, the UK services PMI is an important economic indicator of the UK economic health and growth potential as it accounts for 79.3 percent of UK GDP in 2015, according to the Office for National Statistics. 

The UK services sector has been hit by unusually adverse weather conditions at the beginning of this year with the services PMI decelerating to 51.7 in March. Since then, the UK services sector recovered with PMI rising to 52.8 in April and 54.0 in May and the chances are for the services PMI actually coming in better than expected with the Bank of England chief economist Andrew Haldane hinting on all consumer indicators to erase winter blip.

Andrew Haldane during his speech on productivity growth in the UK economy during the last week of June justified his decision to vote in favor of a rate hike in June by the argument of the UK consumer data has virtually without exception bounced back since May Monetary Policy Committee meeting. Haldane also said that he does not expect a faster pace of interest rate increases than envisaged at the time of May Inflation Report.

The Bank of England chief economist Andrew Haldane confirmed the official stance of the monetary policy statement form June that said that ”Number of indicators of household spending and sentiment has bounced back strongly from what appeared to be erratic weakness in Q1, in part related to the adverse weather,” the Bank of England wrote in June monetary policy statement.

The rise in the UK services PMI is expected to generate demand for Sterling on the foreign exchange market so better-than-expected services PMI reading could finally see GBP/USD jumping substantially above 1.3200 level on Wednesday, especially as the US is celebrating the Independence Day and the official markets are off on Wednesday in the US.