IS STERLING THE DARLING OF EUROPE?

Economic data out today in the UK shows that the little island is recovering much stronger than expected and is now forecast to be among the fastest growing economies in the western world in 2014. Data due out earlier today showed that Britain’s services sector increased in October at the fastest rate since 1997. Purchasing managers’ index (PMI) rose to 62.5 in October from 60.3 in September which was far higher than the forecast of 59.8 thus increasing growth forecasts for the UK.

Ronnie Chopra
Ronnie Chopra

Manufacturing, services and construction have continued to expand at a much faster rate than expected in recent months demonstrating that the UK is one of the better placed economies in Europe. The UK has performed far better than the euro zone where unemployment figures released last week showed that unemployment was at another peak and inflation was far below expectations raising concerns about deflation and a possible interest rate cut may be imminent. UK employment prospects are brighter but the unemployment level is still 7.7 per cent. However, employers in the services sector were hiring staff at the fasted rate since 1997. One drawback is that higher salaries were raising employment costs and subsequently inflation may become an uncomfortable issue thus raising the prospects of higher interest rates sooner than previously expected in the UK.

Today’s economic figures gave a boost to Sterling against both the Euro and US dollar with the pound gaining 100 points against the Euro (and now trading above 1.19) and 80 points at 1.6050 against the greenback. With economic concerns surrounding the euro zone expect Sterling to continue to gain ground against the Euro as UK’s prospects continue to gather momentum and outperform its European peers.

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