Market Overview

U.K. Business Activity Has Shrunk At Fastest Pace In 7 Years

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U.K. Business Activity Has Shrunk At Fastest Pace In 7 Years

The British pound was trading lower by more than 1 percent early Friday morning at $1.3096 U.S. dollars, as the country saw a "dramatic deterioration" in its economy.

Markit Economics reported on Friday that the U.K. economy contracted at its steepest pace since early 2009. The market composite U.K. PMI fell to 47.7 in July (from 52.4 in June) — any reading above 50 implies expansion.

Markit Economics said in a report that the economy showed signs of "dramatic deterioration" in the immediate weeks following the Brexit vote. In addition, Markit is now estimating the U.K. economy is on track to decline by 0.4 percent this quarter.

On the other hand, manufacturing exports rose to the greatest extent for almost two years due to the plunge in the country's currency following the Brexit vote. However, the exchange rate also resulted in a "steep rise" in input prices and a reduction in jobs at factories.

Related Link: Bloomberg: Economists Expect Brexit Outcome Will Result In U.K.'s First Recession Since 2009

Bloomberg suggested that the data release will put additional pressure on the Bank of England to introduce a new monetary stimulus and also force the government to reverse fiscal austerity.

"July's PMI certainly points to more easing," Samuel Tombs, an economist at Pantheon Macroeconomics in London told Bloomberg. "We've seen a variety of business measures fall to levels not seen since the financial crisis. Although consumer confidence might hold up for the next few months, businesses are putting the brakes on investment and that's hitting the economy."

Finally, investors are pricing in an 88 percent likelihood that the Bank of England will indeed lower its key interest rate from its already historically low level of 0.5 percent when it meets on August 4.

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