Lower Services Output Adds to Expectations for BoE Stimulus

THE TAKEAWAY: UK PMI services disappoints and drops to 51.3 -> Slowest services output since June -> Sterling drops further on expectations for BoE stimulus

UK services output is growing at the slowest pace since October of last year, according to the Markit Economics’ Purchasing Managers’ Index. The PMI for services was surveyed at 51.3, which was lower than the expected 52.9 index result and May’s 53.3 survey. Any PMI above 50.0 indicates growth in output.

Part of the decline could be attributed to reduced market activity around the Jubilee holiday, but lower business confidence was definitely a factor of the decline as the Euro debt crisis weighs on economic sentiment.

The BoE will meet tomorrow to decide its monetary policy for the month of July and there is a wide expectation for the central bank to add to its stimulus plan to help the troubled economy. Markit’s Chief Economist Chris Williamson commented, “The three (UK PMI) surveys now collectively down firmly into territory that has triggered action from the Monetary Policy Committee in the past.”

Following a day of limited movement, GBPUSD dropped under 1.5650 ahead of the UK PMI release. Cable dropped even lower following the survey release, before reversing back towards 1.5650. It’s likely that the expectation for added stimulus in tomorrow’s BoE meeting has already been priced into the market.