The GBP EUR exchange rate was higher by 0.27% after UK house prices came in stronger than expected. That was enough to lift the pound sterling from its recent lows. Traders had feared a peak in prices after other housing-related data had slowed. The UK services PMI also jumped in the final figures alongside stagnant employment from the EU, Spain and Italy.
The GBP to EUR was trading at 1.1788 after recent lows near 1.1740.
UK services sector shows strength, but inflation is a threat
The UK services sector strengthened in October after the strongest increase in new employment since June.
According to a survey by Markit, the reopening of the economy and looser international travel restrictions boosted demand, with new export sales rising at the fastest pace for over three years.
The headline IHS Markit/CIPS UK Services PMI Business Activity Index came in at 59.1, ahead of analysts’ expectations and the strongest pace of recovery since July.
However, the recent strength has also created problems with staff shortages and stretched supply chains all contributing to a spike in inflation during the month. Both operating expenses and prices charged by service providers increased at their fastest pace since the survey started in July 1996.
A number of respondents said they had difficulties finding candidates to fill vacancies, despite efforts to boost salaries and conditions. Around 59% of the survey panel reported a rise in their costs with the index highlighting the steepest input price inflation for over 25 years.
“The seemingly likely rise in interest rates this week may take some of the heat out of the overinflating UK economy, but will also result in additional pressure on some household budgets, threatening to cut off this stream of good fortune early next year,” said Duncan Brock, director at the Chartered Institute of Procurement & Supply.
UK house prices higher but outlook is uncertain
The average price of a UK house has risen above £250,000 for the first time ever, according to Nationwide.
Nationwide’s Robert Gardner said: “The price of a typical UK home has now passed the £250,000 mark, an increase of £30,728 since the pandemic struck in March 2020.”
The market for mortgages has remained strong despite the end of the stamp duty holiday but there is uncertainty over the outlook due to a potential interest rate increase from the BoE tomorrow.
This could be due to the talk of inflationary fears with homeowners looking for physical assets to protect their investment. The signaling of an imminent rate hike may have also led to a rush of buyers trying to capture the record low interest rate.
Tomorrow sees the much-anticipated Bank of England interest rate meeting and traders will be looking to see if the bank makes its first move. A 0.15% increase is priced in to the market, so anything less, or a less aggressive path for further increases could lead to a sell-off in the pound sterling.
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