Sterling hits 17-month low as UK services growth slows sharply
LONDONJan 07, 2015 - 12:00 am GMT+3
Jan 07, 2015 12:00 am
Sterling dived to a 17-month trough against the dollar yesterday after data showed growth in Britain's dominant services sector slowed last month to its weakest rate since May 2013. The survey of purchasing managers in the services sector showed its biggest decline in more than three years in December, adding to a run of disappointing data from Britain that has seen sterling shed more than 3 percent in the past month alone. The composite purchasing managers index combining surveys of the services, manufacturing and construction industries hit its lowest level in 19 months. Sterling fell to $1.5183 after the data from around $1.5228 beforehand, its weakest since August 2013 and leaving it down 0.4 percent on the day.
Against the euro, the pound weakened around 0.2 percent to 78.495 pence from around 78.365 pence before. "Clearly the data on the downside is gathering a degree of momentum now ... and there is no reason to buy sterling at the moment," said Neil Mellor, a currency strategy at Bank of New York Mellon. "But that's only the economic side. You could argue that an even bigger part of what is happening is political uncertainty as well." Britain is just four months away from the most uncertain parliamentary election in a generation, which could open the door to a referendum on an exit from the European Union. Many investors worry that would be highly damaging to the UK economy, and that those worries are beginning to weigh on sterling. The pound has also suffered as investors have pushed back bets on when the Bank of England will start raising interest rates, with many now reckoning that will not happen at all this year. That push-back has helped drive the currency down over 11 percent in the past 6 months. But some say that fall may be over for now, and many bet the pound will outperform a euro weakened by ultra-loose monetary policy in the euro zone this year.
About the author
Research Associate at Center for Islam and Global Affairs (CIGA) at Istanbul Sabahattin Zaim University