Pound to Euro Rate Extends Friday Advance on Strong UK PMI Release
- Written by: Gary Howes
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Pound sterling rose after the UK's economy outperformed expectations in January:
○ Manufacturing: 51.6 vs. 50.6 exp. (prior 50.6)
○ Services: 54.3 vs. 51.7 exp. (prior 51.4)
○ Composite: 53.9 vs. 51.5 exp. (prior 51.4)
There was a discernible reaction in key GBP pairs following these strong numbers that limit the odds of a Bank of England interest rate cut next month.
The pound to euro exchange rate (GBP/EUR) cleared 1.15 in reaction to the news and built on the earlier gains that followed the release of a consensus-beating set of retail sales figures.
Above: GBP/EUR price action on Friday.
Just 30 minutes earlier, the Eurozone's PMI data were released, and they disappointed against expectations. The contrasting outcomes create a clear wedge in fortunes that compels GBP/EUR higher.
To be sure, it's been a bruising week for GBP/EUR (it's still down on the week), but it heads into the weekend with some welcome fundamental developments that put some wind in its sails.
S&P Global, compilers of the report, said UK private sector companies indicated a solid increase in output levels at the start of 2026, with the overall rate of expansion reaching its fastest for just under two years.
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January data also signalled a sustained improvement in new order intakes across the private sector economy.
"While growth continues to be driven by the service sector, and in particular financial services and tech, the manufacturing sector is also continuing to report a gathering recovery," says Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
The news on inflationary pressures was also particularly noticeable: strong input cost inflation persisted resulted in the greatest increase in average prices charged by private sector firms since August 2025.
These data will put to rest expectations for a February rate cut at the Bank of England and will raise questions as to whether the Bank can get away with more than one cut this year.
As markets pare bets for further cuts, UK short-term bond yields consolidate at higher levels which fundamentally offers GBP/EUR support, all else equal.
"High staffing costs were meanwhile again widely reported as a key cause of higher selling prices, hinting at an intensification of price pressures at a level above the Bank of England target," says Williamson.
