GBP USD Slips as Data Highlights Economic Slowdown

A choppy week for GBP USD concluded with more peaks and troughs for the pair. The pound fell against the dollar on Friday morning after new data stoked fears about a slowdown in the UK economy.

According to an industry survey, Britain’s businesses recorded their slowest growth in 17 months, and inflation pressures eased. This could reduce pressure on the Bank of England to vote through a large interest rate hike in August to tackle four-decade high inflation.

The UK composite purchasing mangers’ index (PMI) dropped to 52.8 in July from 53.7 in June, according to the S&P/CIPS survey – a reading above 50 signals expansion in activity across the services, manufacturing, and construction sectors.

“Companies’ costs are growing at the slowest rate since last September, which should help alleviate some of the upward pressures on inflation from energy and food in the coming months,” S&P economist Chris Williamson said following the print.

The flash PMI compounded on Friday by soft retail sales figures and a low consumer confidence reading.

Numbers compiled by the Office for National Statistics showed retail sales volumes in the UK fell by 0.1% from May. Despite the dip, the print was better than economists’ 0.3% monthly fall forecast.

The deepening cost of living crisis is responsible for UK consumer confidence dropping to a record low of minus 19% in Deloitte’s latest Consumer Tracker data.

Céline Fenech, consumer insight lead at Deloitte said that with inflation increasing more quickly than average earnings, more consumers feel the cost of living squeeze at the moment. The biggest jump in spending this quarter is on energy and housing costs, including rent and mortgages.

US business activity contracts for the first time in two years

Weak economic data from the US continued to weigh the dollar in the run-up to Friday’s business activity figures. In the wake of the soft numbers from the US housing and jobs markets, investors rowed back on bets on a supersized 100 basis point (bps) Federal Reserve rate rise in July.

The US central bank meets to set interest rates at its July policy meeting next week, and expectations of a 100 bps rise in borrowing costs dampened in favour of pricing for a 75 bps vote.

US business activity contracted for the first time in almost two years this month amid a sharp slowdown in the service sector that outstripped continued growth in manufacturing. This was another blow for an economy already grappling with sky-high inflation, rising interest rates and waning consumer confidence.

The S&P Global flash US composite PMI output index fell more than expected to 47.5 in July from a final reading of 52.3 last month.

The pound jumped almost 1% into the 1.20 mid-range against the dollar following news of July’s fall, which marked the fourth monthly drop in a row.

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