UK Private Sector Activity Beats Expectations

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00:00First of all, Marwena, what's the UK PMI reaction been to pound?

00:05Good morning. Yes, so for the pound, we've seen it rise to session highs now trading above $1.34 again.

00:13And that, I think, really does come down to what people are seeing in terms of expectations from the Bank of England.

00:20This data today from the PMI does show that output was better than expected for the private sector

00:28and across all of the industries, that report.

00:31So that was probably quite reassuring for the government.

00:34Particularly, it really reflects an easing of those budget uncertainties,

00:39which has really been hanging over industry for several months or more.

00:43And that sort of eased off.

00:45We've seen orders coming back in and really a revival.

00:49You know, all areas were in expansion territory.

00:53So that's quite reassuring.

00:55And it's given a boost to the pound.

00:57But we've also seen gilt yields rising because it does suggest that perhaps there will be less need

01:03for the Bank of England to cut rates further going into next year.

01:09Marwena, we also had UK unemployment and wage growth data earlier.

01:13What's it all mean for the BOE?

01:16Yeah, so that paints quite a mixed picture because wage inflation did cool.

01:21That was also after last month's figure was revised higher, however.

01:27But it still came in hotter than economists had been expecting.

01:32We also saw unemployment rising, as you mentioned, to the highest in almost five years.

01:37So there is a general picture of a weak labor market, but with wages still rising.

01:43That particularly coming from the public sector, which is partly due to pay rises coming earlier.

01:49So perhaps some base effects there that we can be looking past.

01:53The overall reaction, I think, from bets on Bank of England rate cuts has been fairly small changes,

02:00but a slight reduction in expectations into next year.

02:04Very little has changed in terms of what people are expecting on Thursday.

02:08We've still almost got a quarter point rate cut fully priced in with about 22 basis points of easing expected.

02:15So I don't think that there's going to be much of a shift there.

02:20But it does really underline the difficulty for the Bank of England's Monetary Policy Committee

02:26in terms of weighing up a weakening labor market, plus still hot inflation and wage growth,

02:34although there are some signs that perhaps that is cooling and that higher output from industry today

02:40does make it perhaps move slightly more to a hawkish position.

02:45Of course, we will be watching very closely CPI data due tomorrow to really get a further picture

02:53of what inflation looks like.

02:55And that is what the bank will be looking at very closely when they're making their decision on Thursday.