GBP: UK composite PMI drops to 2-month low as services sector slows – BBH

Pound Sterling (GBP) is underperforming most major currencies, BBH's FX analysts report.

Inflation limits BoE easing

"The UK composite PMI fell more than expected to a 2-month low at 51.0 (consensus: 51.8) vs. 52.0 in June driven by an unexpected slowdown in services sector activity. The services PMI dropped to a 2-month low at 51.2 (consensus: 52.9) vs. 52.8 in June, while the manufacturing PMI improved to a 6-month high at 48.2 (consensus: 48.0) vs. 47.7 in June."

"Meanwhile, prices charged by private sector businesses increased at a robust pace in July, with the rate of inflation picking up for the first time since April. Sticky underlying inflation suggests the Bank of England has limited room to dial-up easing to support growth. The swaps market price-in 95% odds of a 25bps cut to 4.00% at the August 7 meeting and a total of 75bps of easing over the next 12 months."

"The unfavorable UK macro backdrop of sluggish growth and elevated price pressure spells trouble for GBP, especially versus EUR."