Latest Purchasing Managers’ Index data from the euro area and the United Kingdom pointed to stronger-than-expected business activity in August, supported by improving demand and a fiscal impulse from German defence spending.
Eurozone composite PMI exceeded market expectations, reaching its highest level in several months. The manufacturing sector showed signs of stabilisation after a prolonged contraction, while the services sector continued to expand at a solid pace. Germany’s composite PMI recorded its strongest reading in over a year, helped by new orders and export demand. The German government’s increased defence spending is beginning to flow through to domestic suppliers and manufacturers, lifting business confidence and providing fiscal stimulus.
UK flash Services PMI rose to 52.8 in August, above the consensus forecast of 51.8 and up from the previous month’s reading. The S&P Global-compiled data showed faster expansion in services, stronger client demand and modest employment growth. However, the report also highlighted persistent cost pressures, with input prices rising at a faster rate, which could keep inflation concerns alive.
Monetary policy implications were immediate: the euro strengthened and bond yields ticked higher as investors adjusted expectations for the European Central Bank. Stronger growth momentum may reduce the urgency for aggressive rate cuts, giving policymakers more room to keep rates higher for longer. Similarly, the Bank of England may have more flexibility to hold rates steady or consider future easing only if inflation pressures ease further.
The data provides a brighter near-term picture for European economic growth, but risks remain uneven across the eurozone. For crypto markets, the macro signal is mixed: improved growth supports broader risk appetite, while reduced expectations of central bank easing may limit liquidity-driven upside.
