Pound lifted by better service sector news

The Markit/CIPS headline services PMI index nudged up to 53.9 last month from a three-month low of 53.8 in May. That was above the 53.5 that economists had forecast, and gave a boost to the pound.

But it remains below its long-run average, and Markit said Britain’s economy was likely to have expanded by 0.3 per cent over the second quarter at best.

“It was a relief that it wasn’t weaker, but that’s not to say it’s a particularly great outcome,” said Alan Clarke, economist at Scotia Capital.

“We really need to see the PMIs bouncing back now or we’re talking about GDP growth this year of 1 per cent or lower.”

After contracting at the end of last year, Britain’s recovery has struggled to gain traction. Massive public spending cuts have led to a big drop in consumer and business confidence, and banks remain reluctant to lend.

The details of the PMI survey painted a subdued picture. Employment was static, as it has been for the past year, new business growth slowed and confidence slipped to its lowest since October.

The only bright spot was on the inflation front. Input prices and prices charged both rose at their slowest pace this year, providing hope that inflation in the broader economy will start to ease.

Inflation is currently running at 4.5 per cent, more than double the Bank of England’s target, but the central bank is reluctant to raise rates for fear of snuffing out the recovery.