UK economy slowed faster than expected this month


The pound fell across the board after PMI services data showed in January the UK economy slowed faster than expected. UK services PMI read at 48, well below market expectations of 49.7 and slagging behind a previous reading of 49.9. A reading below 50 means that the economy is contracting and economic activity is slowing. The services industry is the largest industry in the UK and as a result Sterling weakened after the poor reading. In addition, Manufacturing also contracted with a reported PMI of 46.7.

The miss in expectations led to Sterling falling against major currencies – the data also suggests that a recession could be on its way. The services data print could lead to the Bank of England prompting a 25 basis points interest rates rise as a opposed to a 50 basis points hike which money markets had previously priced in. The repricing of an increase at a 25 bps could lead to the British pound being heavily sold. 

Surveys clearly show that consumer and business confidence is lower. Many factors are driving the decline in business activity and these include higher interest rates, inflation still at record highs, squeezed household incomes and falling business investment.