Brutal data damages sterling
UK purchasing managers index fell services sector fell to a 15-month low, well below consensus forecasts as orders growth and export sales both slowed sharply. Input prices are increasing at the fastest rate on record. The UK manufacturing purchasing managers index fell to a 16-month low, slightly below expectations of 54.6. The brutal figures in the services outlook show productivity is slowing and costs are rising.
The Pound dipped sharply following the data with increased fears over a sharp deterioration in economic conditions. The CBI retail sales survey provided modest relief as it almost returned a positive figure for May, climbing back from -35 previously. Retailers were expecting a notable deterioration over the next three months, however. Sterling fell from the 1.2600 mark to below 1.2470 before bouncing back to 1.2530. The Euro pushed to highs of 1.1641 before correcting to 1.1682.
Sterling opens this morning near 1.2530 against the Dollar and 1.1709 against the Euro. Fiscal (tax) policy will be key as there have been reports of a mini-budget within the next few days and also the reaction to the Sue Gray report will be watched closely. Yes, she has been found! The forex point is: will it nobble Boris and trigger a leadership contest and consequently political instability that will hamper the Pound. There will be no Sterling impact if Keir Starmer nobly falls on his sword, but PMQ’s will be lively.