Confidence in the outlook of the UK economy continued to deteriorate last week as June’s set of UK PMIs all fell short of forecasts, driving the pound to a fresh two-year low against the US dollar.
Investors were particularly discouraged to find that the services PMI had unexpectedly slumped to just 50.2, only narrowly avoiding stagnation.
As the service sector remains the primary growth engine of the UK economy this slowdown bodes ill for second quarter gross domestic product and raised the risk of contraction.
Coupled with an underwhelming first quarter labour productivity figure this left GBP exchange rates on the back foot heading into the weekend.
The mood towards the pound could sour further this week if May’s GDP data disappoints.
Evidence that the economy continued to lose momentum in May would further increase the odds of a second quarter slowdown, putting additional pressure on GBP exchange rates.
However, a narrowing of the UK trade deficit may offer the pound a boost in the short term on Wednesday, especially if the accompanying industrial and manufacturing production figures show an improvement.