Scottish independence: Services surge stems pound’s slide on uncertainties of ‘Yes’ vote

The pound was up slightly in morning trade at $1.6486, turning around previous falls

An unexpected August surge for the UK’s services sector today halted a slump in the pound driven down by rising fears of a “Yes” vote in the forthcoming Scottish independence referendum.

The latest survey snapshot of service firms — spanning hairdressers and bar staff to IT and accountants — showed activity hitting its highest level since last October.

The buoyant result offered some support to sterling in the wake of its fall to a 19-month low against the dollar yesterday, after a YouGov poll showed a significant gain in the share of Scots saying they will for independence in the September 18 referendum.

The pound was up slightly in morning trade at $1.6486, turning around previous falls. The FTSE 100 benchmark of leading shares was also given a lift in the wake of the survey, hitting its highest level in more than 14 years.

However, analysts warned the support for sterling might not last. “The growing ‘Yes’-s are weighing heavy on the pound currently and it’s likely that news surrounding this story will continue to dominate trading activity at least in the run-up to September 18, usurping any strong data releases along the way,” said Alex Edwards of UKForex.

The Markit/Cips PMI Index of services jumped to 60.5 last month, well ahead of the 50 mark that separates growth from expansion and outstripping analysts’ expectations of a slowdown in the indicator to 58.5.

The acceleration in services — which account for three-quarters of the economy — follows a very strong reading from builders last month, offsetting  a disappointing dip for the UK’s manufacturers.

“The UK domestic economy continues to roar ahead and [services] more than make up the loss in momentum from relatively small manufacturing,” said Rob Wood of Berenberg.

Economists said that the figures pointed to another strong GDP growth figure for the third quarter of the year, after the second quarter’s 0.8% growth. But they also highlighted signs that the recovery is becoming less balanced.

“The worry is that growth remains too dependent on the domestic economy, raising the risk that higher interest rates will derail the upturn,” said Chris Williamson of Markit.

Analysts also predicted the stronger reading will still not prompt the Bank of England to raise interest rates this year.

The Bank’s monetary policy committee began its monthly meeting today and will announce its decision tomorrow. Last month two external MPC members — Martin Weale and Ian McCafferty — voted to raise rates to 0.75 per cent, citing fears that wage growth inflation is imminent.

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