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Pound rallies after service sector data Pound rallies after service sector data
(about 1 hour later)
(Mid-morning): The pound made sharp gains against the dollar after a strong report on the UK service sector. (Noon): The pound has lost some of the sharp gains made against the dollar after strong data on UK services.
The Markit/CIPS purchasing managers' index showed activity in UK services saw its largest month-on-month rise in the survey's history. The Markit/CIPS purchasing managers' index showed activity in UK services recorded the biggest month-on-month rise in the survey's history.
The pound rose two-thirds of a cent against the dollar after the report came out, to $1.3363. At one stage the pound hit $1.3372 against the dollar, but slipped back to trade at $1.3329, still up 0.2%.
However analysts have warned that we should not read too much into the latest data on the services sector. Some analysts think the data indicates the UK might avoid recession later this year.
"The prospect of sterling strength is on the horizon as today's PMI figures suggest that the reported fall in activity following the EU referendum may have been a blip," said Ranko Berich, from Monex Europe.
"They do change the likelihood of a severe economic contraction in the third quarter, which previously seemed all but assured for many observers," he added.
Outlook warning
Other analysts warned not to read too much into the latest numbers.
"These PMIs are only surveys - more hard economic data over the coming months will be crucial. It's easy to read to too much into a survey for a single month. We are not out of the woods yet," said Neil Wilson, markets analyst at ETX Capital."These PMIs are only surveys - more hard economic data over the coming months will be crucial. It's easy to read to too much into a survey for a single month. We are not out of the woods yet," said Neil Wilson, markets analyst at ETX Capital.
Scott Bowman, UK Economist at Capital Economics said: "The survey should be treated with some caution. Just as the July survey probably overstated the economy's underlying weakness, the August survey probably overstates its subsequent recovery." The FTSE 100 was not moved much by the data. It eased lower, falling by 7 points to 6,887.
The FTSE 100 fell, dragged down by losses for banks. RBS fell 2.7% and Lloyds Banking Group was down 1.7%. Banks weighed on the index, with Royal Bank of Scotland falling by 2.6% and Lloyds Banking Group down 1.7%.
Those shares fell after negative comments from analysts at Deutsche Bank.Those shares fell after negative comments from analysts at Deutsche Bank.
Mining shares were a bright spot on the FTSE 100. BHP Billiton was up 2% and Anglo American rose 2.4%. Mining shares were a bright spot on the FTSE 100. BHP Billiton was up 1.3% and Anglo American rose 2.4%.
Shares in Marks and Spencer fell 0.5% following reports that it plans to cut up to 500 jobs at its head office. Shares in Marks and Spencer fell 0.4% following confirmation that it plans to cut more than 500 jobs at its head office.
US financial markets are closed for Labor Day, which could subdue trading in Europe.US financial markets are closed for Labor Day, which could subdue trading in Europe.