The pound slipped on Tuesday after a survey suggested that British business activity lost some momentum in early September, as companies grew cautious amid concerns over potential tax
hikes later this year.
S&P Global’s preliminary UK Composite Purchasing Managers’ Index (PMI), which tracks both the services and manufacturing sectors, fell to 51.0 in September from 53.5 in August. That’s just above the 50.0 mark that separates growth from contraction. Economists surveyed by Reuters had expected a smaller drop to 53.0.
Sterling dropped as much as 0.2% to a session low of \$1.34885 immediately after the survey, before bouncing back to around \$1.35. Despite this dip, the pound has gained roughly 8% against the dollar and nearly 5.5% against the euro so far this year. On Tuesday, the euro traded slightly higher at 87.41 pence.
Analysts at BBVA noted that sterling has struggled to make significant gains, even amid positive investor sentiment and UK equities near record highs.
“We continue to see scope for sterling weakness,” they said. “Markets are pricing in only a minimal chance of Bank of England rate cuts by year-end. We believe a BoE rate cut in one of the next two meetings is likely.”
Part of the pound’s relative strength against the dollar, despite weaker UK data, reflects expectations that the Bank of England will act more cautiously than the Federal Reserve. UK inflation is running near 4%—almost double the BoE’s target—suggesting a slower pace of rate cuts.
Global currency markets were relatively calm ahead of remarks later from Federal Reserve Chair Jerome Powell. He is expected to stress the importance of caution in cutting rates—a stance echoed by several Fed officials on Monday. This contrasts with new Fed Governor Stephen Miran, a Trump appointee, who argued the central bank may be keeping policy too tight, potentially risking the labor market.
Back in the UK, Finance Minister Rachel Reeves faces mounting pressure to keep public finances under control, raising the possibility of new tax measures in her November budget.