British Pound Falls on Weak UK PMI Reading for Service Sector

The British pound dropped against the dollar and the euro on Friday, to extend its yesterday’s loss after a new reading for the purchasing managers’ index in the UK service sector revealed weak growth. The pound had declined yesterday after the Bank of England kept interest rates unchanged.

A mutual survey done by the Chartered Institute of Procurement and Supply and IHS Markit was released earlier today, revealing that the UK service sector had its slowest growth since October. Markit/CIPS Purchasing Managers’ Index dropped to 54.5 in January from 56.2 in December, missing expectations of a reading at 55.8.

The service sector accounts for about 80% of the total output in the United Kingdom, which made it the main driver of gross domestic product growth in past years. The survey also added that inflationary pressures remained strong in January, as the effect of the 16% drop in the pound’s value after the Brexit referendum in June 2016 continued to push inflation higher.

This comes a single day after the Bank of England said it maintained its interest rates at a record low level, which delivered a strong blow to the British currency. The central bank added that interest rates might remain unchanged for all of 2017 and well into 2018.

GBP/USD traded at 1.2491 as of 18:35 GMT on Friday, after touching 1.2466 at 15:00 GMT, its lowest level since January 31. GBP/USD started the day at 1.2523.

EUR/GBP was at 0.8619, after opening trading today at 0.8594. The pair rose to 0.8636 at 15:00 GMT, which is its strongest level since January 31.

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