The UK’s final services PMI for July was 51.8, which is a bit higher than the preliminary figure of 51.2 but lower than June’s 52.8. The final composite PMI reached 51.5, up from a preliminary 51.0, while the previous figure was 52.0. There has been a slight increase in service sector activity, but new work has decreased sharply, marking the biggest drop in over two and a half years. Employment has significantly declined since February, mainly due to rising payroll costs making hiring less appealing.

Rising Input Prices

Suppliers wanted to pass on their increased employment costs, but the rise in input prices was the slowest since December 2024. Even so, service providers are hopeful about the future. Their confidence improved as worries about US tariffs eased and expectations grow for interest rate cuts in late 2025. The UK services sector is still growing, but the pace is slower than in June. The real concern is the decrease in new business orders and the largest decline in hiring since February. This signals that the British economy may be losing momentum as we move into autumn. This slowdown raises the likelihood of an interest rate cut by the Bank of England later in 2025. July’s data shows that inflation is cooling, so traders might consider using interest rate derivatives that benefit from a rate cut in the fourth quarter. These tools look increasingly attractive due to the weakening economic activity.

Pressure On The British Pound

This outlook is likely to keep pressure on the British Pound, which has struggled against the dollar recently. The expected lower UK interest rates could make the currency less appealing. Using options to brace for a further drop in the GBP/USD exchange rate might be a smart strategy. The situation for the FTSE 100 index is more complex, presenting an opportunity to trade on volatility. While potential rate cuts could enhance stock values, the drop in new work suggests corporate earnings may weaken. This back-and-forth makes strategies that profit from price fluctuations, rather than a straightforward direction, more enticing. Create your live VT Markets account and start trading now.

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