HiFX comments on the service sector figures
Andy Scott, associate director of FX advisory services at foreign currency specialists, HiFX, comments on this morning’s service sector figures:
“Sterling weakened against both the dollar and the euro on Wednesday, following the release of data on the dominant service sector that came in significantly below expectations. The purchasing managers index for May fell to its lowest level since December, showing a sharp slowdown in activity growth. Combined with a weak manufacturing figure and a small bounce in construction, this means growth across the three sectors in May was the second-weakest for two years.
“Whilst domestic demand should be well supported by increased household disposable income due to falling food prices and lower energy costs, today’s figures suggest that external demand may be weakening, creating a drag on services firms as well as manufacturing. We’ve seen the U.S. economy struggling to bounce back as strongly as expected from the very weak first quarter and growth in the euro zone remains quite sluggish, so it wouldn’t be a huge surprise if this is a factor that’s impacting the UK. The Pound is also very strong against a number of currencies, particularly the euro, making British firms less competitive on a global basis.
“With the general election last month, it’s possible that this negatively impacted firms’ views of the economic picture. However, if we don’t see the PMIs bounce back in June, it will certainly raise concerns over the growth outlook for this year.”
