The economic outlook for the UK took another fundamental hit this morning; and the jolt lead to another sharp yet short-lived drop for the pound. Headlining the otherwise barren docket was the CIPS PMI services report for the month of April.
Typically, this indicator is met with only modest interest from the market; but with Europe’s second largest economy quickly cooling under the same forces that have brought the US to the brink of recession, traders have been more responsive to the leading indicators. The services activity report happens to a leading indicator for the country’s largest sector. Therefore, it is less of a surprise that the sharper than expected drop in the reading to 50.4 - its lowest level in five-years - was met with a more prominent market reaction. What’s more, the breakdown statistics suggested the sector may actually contract over the coming months. Outstanding business drop to a new low, while employment, new business and prices charged all declined. Most concerning though was the drop in expectations to its worst levels since the New York terrorist attacks in 2001.