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

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."