Panic eases but sterling still on a knife edge

The post-summer bond panic finally eased on Thursday, giving sterling space to stabilise against the euro and the US dollar after a tricky week.

After UK borrowing costs hit their highest level since 1998, the pound slid and there were fears that October’s autumn Budget could become a re-run of last year. Andy Burnham and John Healey, the new chancellor, will be relieved to see the pressure subside. Still, even if things improve, the next few months could well be very sticky for the new government and the pound.

Several factors contributed to the brighter mood on Thursday. Activity in Britain’s dominant services segment, which includes key industries such as banking, law and real estate, increased for the second month in a row, reaching its highest score since April in S&P’s monthly survey.

American services output also increased last month, beating forecasts to hit a five-month best of 55.4. New orders and activity both increased, despite some respondents highlighting higher costs and a growing backlog of orders.

The Japanese yen also steadied after the Bank of Japan indicated it would be open to raising interest rates faster than it had previously indicated. As of this morning, the yen was over 2% stronger against the pound and the US dollar compared to the start of the week.

Oil is the final key to this puzzle, as a quick and lasting resolution to the energy crisis really would provide confidence that the global economy could escape another run in with inflation. There was no sign of that materialising any time soon, though, with the crucial brent crude index topping $95 to the barrel on Thursday.

Today’s schedule is headlined by employment data from the other side of the Atlantic, although UK markets will be paying particularly close attention to Andrew Bailey’s comments later this morning.