UK Services Activity Weakens in July, Pound Rises Ahead of Rate Decision

The UK economy has suffered more negative data in the state of the economy post ‘Brexit‘, as the latest Markit/Chartered Institute of Procurement and Supply PMI for the service sector, found that output for July fell at the fastest rate witnessed since March 2009.

The business activity index score for last month was 47.4, below the neutral 50 level and significantly down from the 52.3 that was recorded in June, the first PMI contraction for the service sector since December 2012, and not since way back in July 1996 has there been a larger month on month decline than the 4.9 point gap between June and July.

Leaving the European Union (EU), was also viewed in the survey, as one of the major reasons why there is little optimism for the industry over the next 12 months.

Other PMI’s released by Markit have also shown huge recent downturns in sentiment, including in the manufacturing and construction industries, and have shown negative figures for the UK as a whole.

New business volumes for the service sector also declined in July, which was for the first time since the end of 2012, again ‘Brexit’ was blamed for the lack of fresh contracts in the industry, the marked reduction in new work has resulted in the fourth consecutive month on month drop in the level of outstanding business.

All eyes will now be on the all important interest rate decision from the Bank of England, which will be announced tomorrow, the bank’s Monetary Policy Committee begins its two day policy meeting today, after surprisingly voting 8-1 in favour of retaining interest rates at 0.5% three weeks ago.

In similar sentiments to last month, most analysts are predicting a 25 basis points cut, and the data that has been released this week is likely to have strengthened the case to take action on interest rates.

The pound has continued its rise on the US dollar, which has suffered through poor GDP figures released on Monday, and GBP/USD has maintained the $1.3351 this morning GMT that was achieved yesterday, LMAX Exchange believe that the pound is receiving a boost by traders hedging and taking a ‘square’ position, to offset currency flows and event risk.

Retail Trade Stable in Euro Area

The volume of retail trade in the euro area remained stable in June compared to the previous month, but was reduced by 0.2% in the EU, in what are disappointing figures as in both areas retail activity was 0.4% higher month on month in May.

Year on year sector figures were more positive, as sales increased in the euro area and the EU by 1.6% and 2.4% respectively.

In the euro area trade was stable as there were rises of 0.3% for non-food products, and of 0.1% for food, drinks and tobacco, while automotive fuel decreased by 1.3%, in the EU the 0.2% decrease in the volume of retail trade is attributed to falls of 1% for automotive fuel, and 0.2% for “food, drinks and tobacco”, whereas non-food products increased by 0.2%.

The EUR/USD rate has fallen so far today CET to $1.119, after the greenback lost ground yesterday, as the euro shrugged off the brutal deterioration to the price of banking shares, where Commerzbank and Deutsche Bank were down by 9.2% and 4.8% respectively by the end of trading.