Pounds surges as UK economy picks up

Bad timing for Brits. Just as many return from their summer holidays, the pound climbs, making holiday cash go further. Better UK economy data saw the pound rise yesterday to more than €1.18.

The UK's construction and services industry is largely behind the rise. How sustainable is a beefed-up sterling recovery?

Pound positive

The tea leaves appear positive, mostly. There's been a raft of positive numbers coming from manufacturing (Monday), construction (yesterday) and, today, services. Just-released Markit/CIPS UK services data - important given the dominance of this UK sector - saw the purchasing managers index (PMI) climb to 60.5 in August compared to 60.2 the previous month.

That's its highest level since the end of 2006 and the latest increase "was the sharpest seen for over 16 years", says Markit. Markit's data attracts scrutiny because it's a good indicator of GDP growth.

The OECD kept up the positive mood music, claiming it anticipates the UK economy to expand by +1.5% this year, more or less double the 0.8% figure previously aired.

Airlines battered

Some caution is needed; the Markit/CIPS data acknowledges that "employment broadly stagnated, in part due to an inability of service providers to replace leavers". Bear in mind that wage growth in the UK is still crawling along the bottom, depressing spending power.

(New research from think-tank Resolution Foundation claims that 4.8m UK workers - equivalent to 20% of the workforce - now earn below the so-called 'living wage', set at £8.55 in London and £7.45 outside London.)

More widely afield, the euro is kept under pressure from the struggling eurozone. Even if there's a bit of - at last - sunlight spilling on the troubled Spanish economy. "A good Purchasing Managers Index figure from Spain," said analyst Sasha Nugent from foreign exchange operator Caxton this morning, "and a bad one from Italy will prevent the euro gaining much ground."

Looking around at high profile corporate performances, Ryanair this morning confirmed it may miss its profits target this year following poor summer booking levels for September, October and November. This news saw its shares plunge more than 13%, with EasyJet and IAG also falling hard.

In other words, for much of the broader UK economy, there's still some way to go.

The 10 countries that will offer the best value for your pound

The 10 countries that will offer the best value for your pound