The UK’s final manufacturing Purchasing Managers’ Index (PMI) for July was 48.0, a slight change from the initial reading of 48.2. This is an improvement from June’s 47.7, showing a slight easing in the manufacturing sector’s decline. In July, jobs in the sector fell at a quicker pace than in previous months. Input costs and selling price inflation remained mostly stable. Although factory output saw a small increase and future output expectations are at their highest since February, challenges in both domestic and international markets persist.

Domestic And International Challenges

On the home front, rising costs, including higher minimum wages and employer National Insurance Contributions, continue to make people hesitant to spend. Internationally, geopolitical tensions and trade uncertainties add to the hurdles faced by UK manufacturers. The sharp drop in employment rates is a significant concern, with current job cuts resembling those experienced during the pandemic in 2020. As the Autumn budget approaches, manufacturers are expected to focus on stability, hoping for fiscal measures that could support recovery. The UK manufacturing sector shows signs of slowdown, with a PMI of 48.0 for July. This marks the seventh consecutive month of readings below 50.0, which signifies contraction. While inflation remains stable at 2.8% according to the latest Consumer Price Index (CPI), sluggish activity will increase pressure on the Bank of England.

Impact On Currency And Stocks

This economic weakness is likely to push down the British Pound in the coming weeks. The domestic economy appears fragile, with companies reluctant to spend and a weak export market. Similar weak data in late 2023 led to a notable drop in GBP/USD, suggesting traders might be looking to sell the pound against the dollar. The report also indicates challenges for UK-focused stocks, making options to bet against the FTSE 250 index appealing. Since the FTSE 250 is more vulnerable to the domestic economy, it has underperformed the FTSE 100 by nearly 4% in 2025. With job cuts accelerating at the fastest rate since the pandemic lockdowns of 2020, corporate earnings for many domestic firms are jeopardized. Due to the disappointing PMI data and recent GDP figures showing only 0.1% growth in the second quarter, interest rate markets may begin to price in a rate cut more aggressively. Although the Bank of England has kept rates steady, this report raises the likelihood of leaning towards easing policy later this year. Traders could prepare for this by purchasing short-term interest rate futures, which would increase in value if the central bank hints at a cut. Looking forward, we anticipate a cautious period leading up to the Autumn budget, creating uncertainty. This situation suggests that implied volatility for UK assets may start to rise. Traders should think about strategies that benefit from this, such as buying straddles on key indices or currency pairs to protect against major policy surprises. Create your live VT Markets account and start trading now.

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