The UK’s final services PMI for August was 54.2, up from the preliminary reading of 53.6. In July, the final figure stood at 51.8. The composite PMI also improved, reaching 53.5, higher than the preliminary 53.0 and up from 51.5 previously.

Key Outcomes

Key outcomes included faster output growth and a rebound in new orders. Business optimism hit a ten-month high, with the New Orders Index rising by over six points, marking the biggest monthly increase since March 2021. This surge was fueled by higher domestic spending and the first rise in export sales since March. Despite these positive trends, hiring remained low, with workforce numbers decreasing each month since October 2024 due to high payroll costs. Some companies opted for automation and productivity improvements to manage margin pressures. Expectations for business activity improved significantly, supported by better sales pipelines and lower borrowing costs. However, concerns lingered about government policy uncertainty and possible tax increases in the upcoming autumn Budget. Recent services data for August indicates that the UK economy is gaining momentum. With improved output and a significant jump in new orders, we could see a strong finish to the summer. This positive change suggests a more optimistic outlook for UK-related assets in the following weeks. The stronger economic picture creates challenges for the Bank of England, likely making an interest rate cut less probable this year. With inflation still at 2.5% in July 2025, well above the 2% target, market expectations for rate cuts may be pushed back to mid-2026. This situation is favorable for the pound, prompting us to consider long GBP positions against the dollar and euro.

Financial Strategy Implications

We are looking at call options on the FTSE 250 index, which is closely tied to the domestic UK economy. The report highlights increased consumer and business spending as a key factor for this outlook. This renewed demand is a promising sign, especially after the sluggish performance and ongoing job losses since late 2024. For interest rate traders, this data suggests planning for a “higher for longer” scenario from the Bank of England. There is an opportunity to sell short-term interest rate futures, as the market is likely to eliminate expectations of immediate rate cuts. This means betting that borrowing costs won’t decrease as quickly as once thought. Despite the optimism, we need to stay cautious about the uncertainty surrounding the autumn Budget. There are concerns about potential tax increases, which could unsettle the market. Therefore, buying volatility through options on the FTSE or GBP as we approach the budget date could be a smart strategy to protect against sudden policy changes. Create your live VT Markets account and start trading now.

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