**Source: MarketPulse – Written by Kenny Fisher**
—
### UK Posts Soft PMIs, Retail Sales in Focus as Pound Edges Lower
The British pound came under renewed pressure as the UK posted softer-than-expected PMI data, with markets turning their attention to the upcoming retail sales figures. Persistent economic uncertainties and mixed signals from recent data releases have left traders weighing the outlook for sterling, as the Bank of England maintains its wait-and-see approach in the face of sticky inflation and lackluster domestic growth.
#### UK Flash PMIs Come in Weaker
UK private sector activity slowed more sharply than anticipated in June, according to the latest S&P Global/CIPS flash Purchasing Managers Indices (PMIs). These surveys offer a key gauge of business conditions and are closely watched by investors as early indicators of broader economic trends.
– **Manufacturing PMI (Flash):** 46.2 (down from May’s 47.1)
– **Services PMI (Flash):** 51.2 (down from May’s 52.9)
– **Composite PMI (Flash):** 51.7 (vs. prior 53.0)
The manufacturing reading remains well below the 50-level that separates contraction from expansion, indicating ongoing weakness in the sector. The services sector, while still in expansionary territory, also lost momentum compared to the previous month.
#### Key Takeaways from the PMIs
– Growth in the UK’s dominant services sector is slowing, undermined by rising business costs, flagging demand, and an overall cautious spending environment among consumers.
– Manufacturing output contracted for the second consecutive month, reflecting persistent headwinds including elevated energy prices, weak consumer confidence, and global supply chain disruptions.
– Input cost inflation has eased but remains above the historical average, pointing to lingering pipeline price pressures.
– Hiring intentions softened as businesses exercise caution given the uncertain outlook.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted: “The survey data signal a clear loss of growth momentum midway through the year, with persistent manufacturing downturns and softer gains in services activity.”
#### Impact on Sterling
Immediately after the release, the pound slipped against both the US dollar and the euro. The weaker PMI prints raised concerns about the UK’s economic resilience, especially as policymakers at the Bank of England have recently struck a cautious note on the prospect of further interest rate hikes.
– **GBP/USD:** Dropped from an early high of 1.2775, rebounding modestly but struggling to regain traction amid a cautious risk environment.
– **EUR/GBP:** Edged higher, as the common currency found support on the back of relatively stable manufacturing data out of the eurozone.
– Traders now await fresh drivers, with attention shifting to UK retail sales data, seeking further cues on household spending and the broader growth picture.
#### Retail Sales Preview: Hoping for a Bounce
The focus now turns to May’s retail sales numbers due on Friday, a critical indicator for a consumer-driven economy like the UK’s. April saw a sharp decline in retail sales volumes, as persistently high food and energy prices dented household purchasing power. Forecasters are expecting a modest rebound for May, though underlying conditions remain challenging.
**Consensus Expectations:**
– **Retail Sales (MoM):** +0.4% (previous: -2.3%)
– **Retail Sales (YoY):** -2.0% (previous: -3.0%)
The anticipated month-on-month gain would mark an improvement but does little to offset the longer-term downward trend. Real disposable incomes remain under pressure, with wage growth failing to keep pace with inflation despite some signs of moderation in headline CPI readings.
#### What to Watch
– A stronger-than-expected recovery in sales could provide a short-term boost to the pound, signaling some resilience among UK consumers.
– Conversely, another weak showing might stoke recession fears and add to selling pressure on sterling.
– Market participants will also be monitoring
Read more on GBP/USD trading.