Sterling climbed and the FTSE 100 rallied after the UK's dominant services sector outperformed expectations in April.
The purchasing managers' index for the service sector – which represents nearly 80% of the UK's business output – rose to 55.8 in April, up from 55 in March and beating expectations of a dip back to 54.5. An index reading above 50 indicates expanding business activity.
Companies surveyed reported growth in new business and job creation and expressed optimism about growth prospects over the next year.
The data indicated the UK economy was recovering more quickly than suggested by first-quarter (Q1) gross domestic product data, published last week.
"Insipid GDP figures had led many to expect little from today’s services figures, and the markets had priced in a fall," said Richard Berry at Berry FX.
Hat-trick of strong data
The service sector report completed a trio of unexpectedly robust PMIs following surveys of the manufacturing and construction sectors earlier this week, and raised hopes that Q2 GDP will show similar muscle.
A weaker pound – down 15% since last June's referendum that rejected EU membership – has driven a recovery in UK exports and pushed up the manufacturing PMI up to a three-year high of 57.3 in April from March's 54.2.
"The better than expected UK Services data means that second quarter PMI’s have started with a hat-trick of better than expected prints, showing ongoing resilience in the UK economy as we head towards the general election and the beginning of Brexit negotiations," said Jake Trask at OFX.
Inflation pressures build
The pound gained 0.2% against the dollar to $1.2895 – a slightly muted response after the services sector PMI report expressed some concerns over building inflationary pressures due to the steep drop in the pound over the last 10 months.
"Increasing prices, combined with concerns over the upcoming Brexit negotiations, mean we could see a drop off in PMI figures as we head into the summer," added Mr Trask.
Against the euro, sterling was down 0.1% at €1.1799 as equally robust PMIs across Europe offset the impact of the UK numbers.
Stocks reacted well to the data, however, with the FTSE 100 rising 0.4% to 7,261.3.