Flash PMI beats offer cleaner support for GBP than EUR
August flash PMIs surprised firmly to the upside on both sides of the Channel, confirming that the recovery from the spring slowdown has gathered momentum.
But the policy signals differed. Eurozone strength was manufacturing-led and came with easing price pressures, making the release positive for growth but less clearly hawkish for the ECB. In the UK, a sharp services recovery coincided with renewed cost and selling-price pressures, making the relative read more clearly supportive for GBP than EUR.
The eurozone composite PMI rose from 52.0 to 52.1, against expectations for a decline to 51.7, extending a sharp recovery from the contraction seen earlier in the year.
Manufacturing drove the upside, with the headline PMI rising from 51.9 to 52.8, its highest in 54 months, while services held at 51.7. New orders rose at their fastest pace in 40 months, export demand expanded again, and employment increased, suggesting that the eurozone recovery is gaining breadth rather than simply stabilising.
Inflation details were softer, however. Input and output-price pressures eased despite stronger activity, limiting the read-through for ECB policy. For EUR, that leaves the release growth-positive and reduces downside economic risks, but offers less reason for markets to add aggressively to tightening expectations.
The UK delivered the cleaner hawkish surprise. The composite PMI rose from 52.2 to 52.5, versus expectations for 51.6, while services accelerated from 52.1 to 52.8.
extends a striking recovery from June, when the services PMI stood at just 48.8. Manufacturing softened to 51.5, but this was comfortably outweighed by stronger services demand and faster new-business growth.
More importantly for the BoE, stronger activity was accompanied by renewed inflation pressures.
Input-cost and selling-price inflation both accelerated, while employment losses moderated. That combination of stronger services growth and firmer price pressures reinforces the case for policy caution and leaves the August PMIs clearly supportive for GBP. By contrast, the eurozone release improves the growth picture without delivering an equally clear hawkish ECB signal.