Sterling Holds Firm Amid Weak UK Business Activity and Economic Uncertainty
Market Reactions and Economic Indicators
By Lucy Raitano
LONDON, May 21 (Reuters) - The pound was steady against the dollar on Thursday as broader currency markets focused on developments in the Iran war, while traders digested some worse-than-expected surveys of British business activity.
Sterling was flat at $1.3437. Against the euro, the pound was 0.13% higher at 86.42.
Business Activity and PMI Data
A survey on Thursday showed British companies suffering their most widespread drop in activity in more than a year due to the economic fallout from the Iran war and political uncertainty at home.
UK Composite Purchasing Managers' Index
Data company S&P Global's preliminary UK Composite Purchasing Managers' Index for May tumbled to 48.5, from 52.6 in April, its first sub-50.0 reading since April 2025 and far below the 51.6 median in a Reuters poll. A PMI below 50.0 indicates slowing activity.
Comparison with Recent Economic Data
The figure overshadowed recent positive British data reads, including strong Q1 GDP figures last week and inflation figures on Wednesday.
April's CPI figures on Wednesday showed inflation came in at 2.8% in April, down from 3.3% in March and below economists' expectations for a 3% reading.
Expert Commentary and Market Sentiment
Economist Perspectives
"It's a case of what might have been for the UK," said Henry Cook, senior economist at MUFG Bank.
"In a different world, we'd be looking at that Q1 GDP number and saying this is a great platform for growth ahead, yesterday's inflation number would have been potentially bang on target... we'd be looking at a couple of BoE rate cuts this year."
Impact of Geopolitical Events
"That's a different world," he said, highlighting the ongoing closure of the Strait of Hormuz that has choked the global flow of oil and led to a surge in energy prices, upending central bank expectations and the global growth outlook.
Bank of England Policy Outlook
Interest Rate Decisions
In April, the Bank of England kept interest rates on hold and assessed the potential economic impacts of the U.S.-Israeli war on Iran, one of which could necessitate a "forceful" increase in borrowing costs.
Market Expectations
Even so, money market bets indicate an 86% chance of no change at the BoE's next meeting on June 18.
(Editing by Alex Richardson)
