Sterling continued to ease back from the previous week’s gains as figures revealed a lack of growth from the service industry, which has put the U.K. economy at the door step of a recession. The decline in the manufacturing sector continues to worsen as July’s PMI reading was the third straight month that it contracted and lowest on record. As inflation stands at 4.4% and rising, combined with a labour market which has lost over 40,000 jobs in the past two months, this will weigh on consumer spending going forward. The dour growth story for the U.K. may force the BoE to put aside their concerns about inflation and take measures to foster growth.

Recent US Dollar strength combined with poor German growth have allowed the Euro to remain weak and therefore the GBP/EUR cross has remained range bound despite all the negative feeling in the UK. As a result, clients should be careful if waiting to buy Euros as we expect the not so mighty Dollar to move back which should strengthen the Euro in the short to medium term.