Pound slumps as UK service sector slows

Julian Harris
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GROWTH in the UK’s service sector eased last month, after printing a tearaway rate in March.

Services expanded at an index score of 54.3, according to the latest purchasing managers’ index (PMI), down from March’s 13-month high of 57.1.

The slowdown in the economy’s largest sector will concern chancellor George Osborne, with this week’s PMI surveys pointing to quarterly growth of just 0.4 per cent for the quarter.

The news saw sterling drop to a 13- month low against the euro, as investors judged that weaker economic performance would rule out increases in the UK’s Bank rate.

The pound touched a six-month low versus a currency basket, but clawed back some losses in afternoon trading after the European Central Bank appeared to rule out an interest rate hike next month.

Even though growth slowed in the British service industry, its progress remains above the six-month average (53.5). All PMI scores above the no-change rate of 50 indicate economic expansion.

“Despite the slowdown, growth of the service sector nonetheless remained solid, supported by another month of marked new business wins,” the report said.

New business grew at its fastest rate for a year, “amid reports of greater client activity both at home and abroad”.

The spike in March’s PMI was partly attributed to government departments rushing to spend their budgets before the end of the tax year more so than usual – “perhaps due to the impending closures of government departments and projects.”

Nonetheless, this week’s surveys are “clearly a disappointment for both the Bank of England and the government,” said Chris Williamson of Markit, which compiles the data.

April’s surveys indicated “the largest loss of growth momentum seen since just after the collapse of Lehmans in late-2008,” Williamson said.

Sluggish growth in the UK will cause the chancellor to miss his target of eliminating the annual deficit by the end of the parliamentary term, the National Institute of Economic and Social Research said yesterday.