Manufacturing PMI in the UK for July came in at 49.1 missing expectations of 51.0 and slipping below the crucial expansion/contraction level at 50. The reading was a marked decline from June’s 51.4 (revised up from 51.3) reading and was the first contactionary reading since September 2009.

This surprise drop into contraction territory may be the catalyst that the central bank has been waiting for before enacting further stimulation measures to help support the floundering economy. In recent months there has been loose discussion of expanding the central bank’s asset purchase plan by 50 billion pounds to 250 billion pounds. We will wait and see what official comments follow this release for insight into the governing council’s plans.

UK_PMI_Manufacturing_Dips_Surprisingly_Below_Key_50_Level_Pound_Drops__body_gbp.png, UK PMI Manufacturing Dips Surprisingly Below Key 50 Level; Pound Drops

Sterling took a dive against the US dollar in the aftermath of the disappointing reading as players re-asses their outlook for the UK economy which appears to be struggling that previously thought. While the UK economy certainly faces some challenges is has largely been thought of as in better shape that its North American and European peers, however, in lieu of this showing many players will take second look at the UK’s growth expectations. Additionally, with further easing by the Bank of England now a real possibility the outlook for the pound doest not look good.

Written by Jonathan Granby, DailyFX Research Team