UK PMI Services and Composite figures showed a sharper downturn than in Europe. The final PMI Services estimate was 0.7ppt below the initial estimate.
The PMI Composite Input Price index rose by a record 6.7ppts. This exceeded the previous record after the pound fell following the 2016 Brexit referendum.
Uk Sentiment Diverges From Europe
The 6.7ppt rise was also larger than the increase seen during the global inflation shock after Russia’s invasion of Ukraine in 2022. The report linked the input price rise to energy-related concerns.
The Food & Drink Federation expects year-end UK food inflation of 9–10%. This forecast was updated last week.
The text says inflation risks could remain even if there is a ceasefire. It adds that a Bank of England rate rise cannot be ruled out.
The article says it was created with the help of an Artificial Intelligence tool and reviewed by an editor.
Sterling Rates Volatility And Trading Implications
We are seeing a familiar pattern where UK business sentiment appears more fragile than in Europe, echoing the concerns that were highlighted back in 2024. The latest S&P Global/CIPS UK Composite PMI for March 2026 edged down to 52.5, indicating that the economic recovery momentum we saw at the end of last year is already starting to fade. This slowdown puts the spotlight back on the UK’s underlying inflationary pressures.
The warnings about input prices from that period feel particularly relevant today, especially after the record surge we saw following the 2022 energy shock. While food inflation did fall sharply through 2025 from its post-pandemic peak of over 19%, the latest Office for National Statistics data showed a worrying uptick to 3.1% last month. This suggests that price pressures are stickier than many had hoped, creating a real headache for policymakers.
This environment presents a major dilemma for the Bank of England, which has held its Bank Rate at 5.5% for the last six months. The market has been pricing in at least one rate cut by the end of the year, but these persistent inflation signals mean that view could be wrong. Derivative traders should therefore consider positioning for higher volatility in short-term interest rate markets, as the odds of a surprise hold or even another hike are being underestimated.
Consequently, we could see renewed strength in the pound if the market begins to seriously re-evaluate the path of interest rates. Current positioning seems too complacent, creating an opportunity for those trading options on GBP/USD or EUR/GBP. Buying sterling call options could be an effective way to position for a hawkish repricing in the weeks ahead.
