Sterling rose against the dollar and euro on Monday, as a survey of business activity pointed to rising prices in Britain and as investors braced for a series of central bank meetings this week, including that of the Bank of England on Thursday.
British businesses have cut staff at the fastest pace in almost four years, raised prices and become more pessimistic about future prospects, a survey showed on Monday.
The preliminary S&P Global Flash Composite Purchasing Managers’ Index held steady at 50.5 in December, remaining just above the 50.0 line that separates growth from contraction, but below expectations for a Reuters poll of economists forecast a rise to 50.7.
The pound rose 0.52% against the greenback on Monday, and recouped some of last week’s losses, when the currency fell and hit its lowest point since November 27 on Friday at 1.2607 $ after data showed the UK economy contracted unexpectedly in October.
By 1100 GMT, the currency had pared some of those gains, up 0.31% against the dollar at $1.2647.
The pound also strengthened against the euro, with the single currency down 0.28% to 82.96 pence.
Kirstine Kundby-Nielsen, FX research analyst at Danske Bank, said markets have focused on “sticky price components” in the PMI data.
“Price indexes are higher overall, indicating some continued rigidity in pricing, a major concern for the BoE,” Ms Kundby-Nielsen said.
Prices charged by businesses rose at the fastest pace in nine months as input costs, including wages, rose.
According to Christ Williamson, chief economist of S&P Global Market Intelligence, the PMI survey indicates a slowdown in the economy in the last quarter of 2024 and perhaps even worse in early 2025.
“Bank of England policymakers may be cautious about cutting interest rates, given the reported resurgence in inflation, which would further increase the risks of a slowdown in 2025,” he said. he declared.
Money markets widely expect the BoE to keep rates unchanged on Thursday.
The central bank’s decision will come a day after that of the US Federal Reserve, which is expected to cut rates by 25 basis points on Wednesday and indicate a measured pace of easing for 2025.
Sterling is expected to see a monthly decline against the euro, which rose 0.8% in December, but is still on track to gain almost 4% this year against the single European currency.
This is partly due to the expected difference between interest rates in Britain and the euro zone, with the BoE likely to make cuts more slowly than the European Central Bank.
