European session review: GBP appreciates, underpinned by upbeat UK's services activity data

GBP strengthened against its major rivals in the European session on Thursday, bolstered by the UK’s May Services PMI data, which showed that Britain's services sector witnessed its fastest growth in activity in 24 years last month, as business and consumer spending surged in response to looser pandemic restrictions. 

The report from the IHS Markit/the Chartered Institute of Procurement & Supply (CIPS) showed that final services PMI rose to 62.9 in May, up from 61.0 in April and a preliminary estimate of 61.8.  The latest reading was the highest since May 1997. The report also revealed that new orders rose at the quickest rate since October 2013 and the pace of job creation was the fastest since March 2015, with survey respondents citing a combination of new hires and the return of employees from furlough. Backlogs of work nonetheless continued to accumulate at a robust pace due to forward bookings, pressure on business capacity and staff shortages. In addition, input cost inflation reached its highest since July 2008. Commenting on the May PMI data, Tim Moore, Economics Director at IHS Markit, noted: “The latest survey results set the scene for an eye-popping rate of UK GDP growth in the second quarter of 2021, led by the reopening of customer-facing parts of the economy after winter lockdowns

Adding to the positive sentiment, the Office for National Statistics (ONS) reported that the proportion of British businesses that were open in the first half of May increased to 87% in the second half of May 2021 from 83% in the previous two-week period, as COVID restrictions continued to ease across the UK. That was the highest proportion since comparable estimates began in June 2020. Meanwhile, the proportion of employees on furlough fell to 8% (equates to 2.1 million workers), the lowest since October 2020.