GBP/USD continues to be burdened by the economic controversy in the UK. Now, the UK business services are undergoing a recession.

S&P Global/CIPS reported disappointing figures in the UK Purchasing Managers' Index (PMI) survey results released earlier this afternoon (August 23rd). As a result, the GBP/USD pair briefly plunged, touching the daily low point at 1.2614, and GBP/JPY dropped more than 1% to around 183.30.

GBP/USD

The S&P Global/CIPS report indicates that business activity in the UK manufacturing sector continues to be mired in recession, with the PMI score dropping from 45.3 to 42.5 in the preliminary data for August 2023. The UK Manufacturing PMI score has been recorded below the threshold of 50.0 for approximately eleven consecutive months.

The slowdown has spread to other sectors, causing the Services PMI score to shift from expansion to contraction. There was a significant decrease from 51.5 to 48.7. All actual data is lower than consensus estimates.

The news portrays the deteriorating economic situation in the UK, causing the British pound exchange rate to plummet. Nevertheless, these data alone are unlikely to affect the prospects of the next interest rate hike in the UK.

Several analysts consider the setback quite reasonable, considering that the current high-interest rates in the UK burden business activities. The further effects of the high-interest rates will also continue to spread. Nevertheless, the Bank of England (BoE) still needs to raise rates at least once more if they deem it necessary to mitigate the threat of inflation in the home country of The Three Lions.

"We doubt the Committee would raise rates to the 6% level priced-in by markets. But the MPC likely will not be willing to take any risks with the inflation outlook and probably won't have seen enough hard evidence by their meeting next month to press the stop button," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

GBP/USD is moving up again after touching 1.2614, but the recovery is limited to the range of around 1.2700 only at the time of writing this news. Market participants still eagerly anticipate the Jackson Hole Symposium on August 24-26, where the world's most influential central bank leaders gather.