U.K. July services PMI surged to 53.2 from 51.6, well above our survey median for 51.8 and the highest recorded since February 2008 increasing hopes that the economy as a whole will expand in Q3, after the July manufacturing PMI reading also pushed through the 50-mark. The new business index rose to 52.7 from 49.7. Gilt futures slumped on the release, combined with better than expected industrial production figures.
U.K. industrial and manufacturing production grew in June, up 0.5% m/m and 0.4% respectively, adding to hope that the U.K. recession is over and that growth will return in Q3 of this year. Both indicators came in well above forecast, after disappointing in May. Manufacturing growth was 0.4% m/m while the y/y rate fell 11.7%, compared to our survey medians for 0.1% and -12.8% respectively) and after -0.6% m/m (revised from -0.5%) and -12.7% y/y in May. Total industrial production rose 0.5% m/m and fell 11.1% y/y (medians were for unchanged m/m and -11.4% y/y) after -0.7% m/m and -12.0% y/y (-0.6% and -11.9% respectively previously). All in all, though improvements to the manufacturing sector are partly due to rebuilding inventories, today’s data is nevertheless encouraging. And together with PMI readings for both the manufacturing and services sectors, data increases hopes for GDP growth in Q3. The ONS said that the June industrial production release suggests a small upward impact on Q2 GDP (which fell 0.8% q/q according to the preliminary release).
Cable hit new trend highs after the earlier pull back. A U.K. clearer was a good buyer ahead of 1.6900, which lifted the pair back in to 1.6960. Further demand was noted after U.K. July services PMI surged to 53.2, which was its highest level since February 2008 and enabled Cable to trade at a 1.7008 peak. Cable’s inability to break 1.7010 added substance to speculation of a 1.7010 option barrier and kept stops between 1.7010-20 intact. Technically, the current price action suggests a move through 1.6940 opens up the topside to the next big resistance level at 1.7330. This would represent a 50% retracement of the 2.1160-1.3500 move and will be pivotal in the weeks ahead.