UK: Significant fall in the PMIs reduces BoE rate expectations, weighing on sterling – Commerzbank

The British pound came under downside pressure as a result of the UK PMI publications. The latest data has been interpreted as dampening the prospect for further Bank of England (BoE) monetary tightening, therefore, sterling is set to weaken, economists at Commerzbank report.

Surprisingly weak economic data putting pressure on sterling

“The PMIs published yesterday recorded a surprise fall in May, in particular the index for the service sector. The positive economic effect of the corona restrictions coming to an end seems to be easing. Instead, the high cost of living is leading to cautious consumer spending.”

“In view of yesterday’s data, it can be assumed that the BoE will continue to sound cautious, which is likely to put pressure on sterling.”

If the economy continues to provide negative surprises over the coming months the market might further correct its rate expectations to the downside, putting pressure on sterling.”