UK Services data shows signs of better than expected Q2 UK growth!

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Yesterday, the outlook for the Sterling exchange rates improved asmarkets responded to a better-than-expected UK services sector PMI for May. Markit’s services PMI rose from 52.8 to 54.0, beating the forecast of 53.0 and cementing hopes that the UK’s soft growth in Q1 was only temporary, rather than evidence of a more serious downward trend in growth.

This was great news for the British economy, with the services sector making up a massive 80% of UK GDP. Markit’s Chief Business Economist, Chris Williamson, also asserted that the result should make the Bank of England (BoE) more likely to raise interest rates during the summer months though this will still be heavily dependent on economic data continuing to prove upbeat.

Overnight, Australian Q1 GDP growth came in at a stronger than expected 1% in Q1, up from 0.5% in the last quarter of 2017. Meanwhile, White House economic adviser Larry Kudlow suggested that the US might pursue separate trade deals with Canada and Mexico rather than renegotiating NAFTA.

Today has a light data calendar with nothing of note in the UK. Indeed apart from Thursday’s Halifax price index there are no further UK releases for the rest of this week. A couple of Bank of England policymakers are scheduled to speak. One of these is Silvana Tenreyro, who in comments on Monday said she was in favour of modest interest rate hikes in the UK but was vague on timing. Markets will be watching for any indications that she is in favour of an August hike. 

To the US and its trade deficit is likely to have fallen in April. Already released data for trade in goods point to a second consecutive monthly decline. While the level of the deficit remains very high, trade appears to be on course to provide a positive contribution to GDP growth in Q2.

Finally, ECB policymaker Praet is set to speak this morning. Given the close proximity of next week’s ECB policy meeting he is unlikely to say anything about the near term outlook for monetary policy. However, it will be interesting to see if he has any comments on recent developments in Italy.

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