UK economic activity fell unexpectedly for the first time since January as higher borrowing costs hit demand, according to a survey that prompted markets to reassess their interest rate expectations and buy gilts.
British government bonds recorded their biggest fall in yields for months after August’s flash UK composite purchasing managers’ index prompted investors to scale back forecasts of peak interest rates to below 6 per cent. Sterling fell 0.16 per cent against the dollar to $1.2714 after an initial sell-off was pared back.
The PMI figures, a measure of the health of the economy, were 47.9 in August, down from 50.8 in July and below the neutral 50 threshold for the first time since the start of the year.
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